*).'*,;: :'/, J- )■■'■''":: '.:■ 'r„ ■ ■ /. ^^m^k^^^t^^-' ■'■■ '-■ .::^iA^.::^:-:;,;'r^;--;' ■ .'-'i'"ri--''^;l. ''■'•■■ LEGISLATIVE RESEARCH COMMISSION INTERSTATE BANKING REPORT TO THE 1989 GENERAL ASSEMBLY OF NORTH CAROLINA 1989 SESSION A LIMITED NUMBER OF COPIES OF THIS REPORT IS AVAILABLE FOR DISl RIBU HON THROUGH THE LEGISLATIVE LIBRARY. ROOMS 2126, 2226 STATE LEGISLATIVE BUILDING RALEIGH. NORTH CAROLINA 2761 TELEF'HONE: (919) 733-7778 OR ROOM .500 LEGISLATIVE OFFICE BUILDING RALEIGH. NORTH CAROLINA 2761 TELEPHONE: (919) 733-9390 TABLE OF CONTENTS Letter of Transmittal i Legislative Research Commission Membership ii PREFACE 1 COMMITTEE PROCEEDINGS 3 FINDINGS AND RECOMMENDATIONS 16 APPENDICES A. Relevant portions of Chapter 873 of the 1987 Session Laws authorizing the studv and House Bill 1924 of the 1987 Session 21 B. Membership of the LRC Committee on Interstate Banking 24 C. List of Those Mailed Notices of the Committee s Meetings 25 D. Recent His!or\ of Interstate Financial Institutions Legislation in North Carolina 27 E. Statutes in North Carolina on Interstate Financial Institution Acquisition 30 F. Effects of Interstate Banking. Experience in Administering the Interstate Banking Act and the Bank Holding Company Act. and List of Bank Holding Companies bv Banking Commissioner William T. Graham...'. 44 G. Effects of Interstate Banking on Low-Income People in North Carolina, by Ms. Margol Saunders 53 H. Effects of Interstate Banking in North Carolina by Dr. Robert A. Eisenbeis 57 I. Bank Marketing Practices and Current Trends of Interstate Banking b\ Dr. Nicholas Didou 6^ J. Loan Loss Ratio Information from Banking Commissioner William T. Graham 83 K. North Carolina Banking Emplo\mcnt Information 8f) L. Graphs Showing. b\ T\pe of In^tiliilion. Niimher of Financial Institutions and Number o\ Business Locations of Financial Institutions % M. Changes in Number and Location of Banks in 1988 98 N. Recommendations of Banking Commissioner and Related Statement of the North Carolina Bankers' Association 1 00 O. Availability and Need for Commercial Capital in Western North Carolina by Mr. Tom McClure 107 P. Unmet Financing Needs of Commercial Ventures and Potential Homeowners by Ms. Katherine McKee 122 Q. Availability of Data on Effect of Interstate Banking and Credit Needs in Noilh Carolina by Mr. Tom Schlesinger 1 3(-> R. Need for Information on Credit Formulation and Distribution in North Carolina by Mr. Hugh Stevens I .'^2 S. Credit Availabilit\ and Need in North Carolina by the North Carolina Bankers" Association 155 T. Legal Basis Under Which the NCNB Corporation Acquired an Interest in First Republic Bank Corporation of Texas and Other Comments by Mr. G. Patrick Phillips \i>3 U. Proposed Draft Legislation For Repealing the Anti-Commission Rule by Mr. L McNeil Chestnut lf>6 V. Committee's Legislative Proposal I -Confidentiality of Records and Publication of Notice of Acquisitions Under the interstate Banking Act 172 W. Committee's Legislative Proposal !i--Registration of BHC's Indirectly Controlling Nonbank Subsidiaries in North Carolina 1 ~7 X. Committee's Legislative Proposal Ill-Allow Commissions on the Sale of Initial Bank Stock I 78 STATE OF NORTH CAROLINA LEGISLATIVE RESEARCH COMMISSION STATE LEGISLATIVE BUILDING RALEIGH 27611 December 14. 1Q88 TO THE MEMBERS OF THE 1989 GENERAL ASSEMBLY: The Legislative Reseyrch Commission lierewith submits to you tor your consideration its final report on interstate banking. Ihe report was prepared by the Legislative Research Commission's Committee on Interstate Banking pursuant to Section 2. 1 of Chapter 873 of the 1987 Session Laws. Respectfully submitted (?^/C^iipy- ^ A a ^^ i •• Li St on B. Ramsey r Cochairmen Legislati\e Research Commission 1987-1988 LEGISLATIVE RESEARCH COMMISSION MEMBERSHIP Speaker of the House of Representatives Liston B. Ramsey. Cochair Rep. John T. Church Rep. Bruce Ethridge Rep. Aaron Fussell Rep. Vernon James Rep. Josephus Mavretic President Pro Tempore of the Senate J. J. Harrington. Cochair Senator Henson P. Barnes Senator A. D. Guy Senator R. L. Martin Senator James Richardson Senator Lura Tallv PREFACE The Legislative Research Commission, estahhshed by Article 6B of Chapter 120 of the General Statutes, is a general purpose study group. The Commission is cochaired by the Speaker of the House and the President Pro Tempore of the Senate and has fne additional members appointed from each house of the General Assembly. Among the Commission's duties is that of making or causing to be made, upon the direction of the General Assembly, "such studies of and investigations into governmental agencies and institutions and matters of public policy as will aid the General Assembly in perfonning its duties in the most efficient and effective manner" (G.S. 120-30.17(1)). At the direction of the 1987 General Assembly, the Legislative Research Commission has undertaken studies of numerous subjects. These studies were grt)iipcd into broad categories and each member of the Commission was given responsibility for one category of study. The Cochairs of the Legislative Research Commission, under the authority of G.S. 120 30.10(b) and (c). appointed committees consisting of members of the General Assembly and the public to conduct the studies. Cochairs. one from each house of the General Assembly, were designated for each committee. The study of interstate banking was authorized by Section 2.1 of Chapter 873 of the 1987 Session Laws. 1987 Session. That act states that the Commission may consider House Bill 1924 in determining the nature, scope and aspects of the stud\. Section 3 of House Bill 1924 reads in part: "[tihe Commission shall study the impact that regional interstate banking has had on North Carolina's communities, firms and people." The relevant portions of Chapter 873 and House Bill 1924 are included in Appendix A beginning on page 21. The Legislative Research Commission grouped this study in its economic dexelopment area under the direction of Senator A. D. Gu\ . TIk- Committee was chaired by Senator A. D. Guy and Representative David A. Diamont. The full membership of the Committee is listed in Appendix B. page 24 of this report. The list of those mailed notices of the meeting is contained as Appendix C. page 25. A committee notebook containing the committee minutes and all infoiTnation presented to the Committee is filed in the Legislative Library. COMMITTEE PROCEEDINGS March 16. 1988 At its first meeting, the Committee re\iewed Chapter 873 of the 1987 Session Laws and House Bill 1924 which authorize the study of reciprocal interstate hanking. The staff presented to the Committee a review of the recent history of interstate financial institutions legislation in North Carolina and specificalh addressed the following legislation: N. C. Regional Reciprocal Banking Act (Interstate Banking Act). Bank Holding Company Act of 1984 (Bank Holding Company Act). N. C. Regional Reciprocal Savings and Loan Act. The staff review of the legislation and amendments through the end of the 1988 Session of the General Assembly is attached as Appendix D. page 27. The first three acts listed above with 1988 amendments are contained in Appendix E. page ."^O. The first segment of the meeting addressed the administration of the Interstate Banking and Bank Holding Company Acts, their strengths and weaknesses with suggestions for improvement, and interstate banking's effect in North Carolina. Mr. Hal Lingerfeld. Deput\ Banking Commissioner, delivered a statement fiom William T. Graham. Commissioner of Banks, on the effects of interstate banking on; (1 ) Statewide distribution of credit and its impact on various sectors of our stale. (2) Cost and Availability of other financial ser\'ices. (3) Pricing of Financial services. (4) Employment. (5) Level of competition between financial institutions in the State. -3- (6) Financial product deregulation on the insurance, real estate, securities, and export industries. A copy of Commissioner Graham s statement, paper relating the experience of his office in administering the Interstate Banking Act and the Bank Holding Company Act. and a list of bank holding companies registered with the Office of the Commissioner of Banks as of December 31. 1987. are included in this report as Appendix F. page 44. Both Mr. Lingerfeld and Mr. L. McNeil Chestnut. General Counsel to the Banking Commission, responded to members" questions. Mr. Chestnut related Commissioner Graham s interest in having some discretion in allowing an out-of-state bank to come in to buy an existing North Carolina bank when it would be beneficial to the public if the five-year rule could not be altogether eliminated. Mr. Lingeri'eld said that competition within the State is very keen. Man\ new banks have been chartered, hut because there has not been an out-of-state purchase. there is no measurable way of gauging the effects of interstate banking. Mr. Al Fuqua. representing the North Carolina Bankers Association, stressed the appropriateness of this Committee's studying where the State has been, where it is presently, and where it is likely to go in future years on the issue of interstate banking. He confirmed that the interstate banking laws which had been adopted by pre\ious legislatures had improved the banking industry. Mr. Thomas P. Rideout. President-elect of the American Bankers Association and Vice-chairman of First Union Bank of North Carolina, spoke to the Committee. He said that North Carolina's General Assembly made the right decision in allowing interstate banking and that decision puts "us in the enviable position of being able to exploit the inevitable integration, not only of national financial power, but internaiiona! financial power." He elaborated that some form of nationwide banking will arri\c in the I990's. but that there does not presently seem to be a momentum for pulling a nationwide trigger in North Carolina. He encouraged adding the slate of Texas lo the region so as not to restrain future growth. Mr. Rideout related that across the country people are migrating [o regional service centers for education and employment. Therefore, the banking industry seems to be growing and increasing business more in communities in these areas rather than others. The banking industry is working to encourage economic development in all areas. Mr. George King. Administrator of the Savings and Loan Division of the N. C. Department of Commerce, said that the Interstate Banking Act has had an iniangilile effect on thrift institutions causing them to refocus on their home ground. He related that there has been no acquisition of out-of-state sa\ings and loan institutions by North Carolina thrifts and no acquisition of North Carolina thrifts by out-of-state entities. Mr. Paul Stock. Executi\e Vice President and Counsel of the N. C. League of Savings Institutions, infoimed the Committee that there was a lack of response from his members when he surveyed them on the issues being discussed at this meeting. There has been no interstate savings and loan activity, but our Interstate Savings and Loan Act allows that flexibility. The size of the institutions is partly responsible for this inactivity. He related that there is one institution in North Carolina which is larger than one billion dollars in size: the bulk of the 137 savings and loans are small financial institutions having a couple of thousand mortgage loans, some less than (hat. -5- Ms. Margot Saunders (formerl) Ms. Margot Roten). Consumer Altome\ with Noiih Carolina Legal Ser\'ices Resource Center. Inc.. spoke concerning the eftecis interstate banking has had on the low income people of North Carolina. Ms. Saunders indicated problems for low income individuals concerning affordability of bank accounts and availability of home mortgage loans and problems of availability of small business financing in this state "may be caused or worsened by interstate banking." She said that only the General Assemhl\ "can compel banks taking deposits from North Carolina citizens to respond to the needs of those citizens." Ms. Saunders suggested ihc following remedies to correct problems which the Committee may uncover: (1) Disclosure requirements to set forth the true cost of senices provided b\ banks: the actual interest income on deposit accounts and the potential costs of consumer accounts: and the distribution of credit by geographic area and borrower type. (2) A more precise legislative definition of the "convenience and needs" language in North Carolina banking law and broad application of those convenience and needs requirements. (3) Incentives and disincentives for financial institutions receiving deposits and managing investments for public bodies. (4) Expanded and clarified regulatory powers and duties for State officials. (5) State funding of a secondary market for community reinvestment loans encouraging banks to make, for example, loans to small businesses not previously cost justified. Ms. Saunders" statement is contained in Appendix G. page 53. Dr. Roben A. Eisenbcis. Associate Dean lor Research. Graduate School of Business Administration. University of North Carolina at Chapel Hill made a presentation to the Committee. A cop\ of his remarks is included as Appendix H. page 57. of this report. He indicated that interstate hanking has resulted in a competiti\e hanking system including lowering of prices, efficient allocation of credit and a sale and sound banking system. He believes that had North Carolina not passed intersiale banking, the results would ha\e been a lesser role for traditional banking organizations and a weaker banking system. He indicated that the information requested in House Bill 1924 is not available. Professor Eisenbeis said that attempting to allocate credit and allocate services by controlling price is inefficient, does not usually target the people you want, and does not work. He has found this to be true with deposit rate ceilings. He feels thai a ceiling on credit card rates could be effecti\e only if the ceiling is lower than the current market rate. Dr. Nicholas Didow. Professor. Graduate School of Business Administration. University of North Carolina at Chapel Hill, acknowledged that it is very diflkiilt to sort out the effects of interstate hanking legislation on the State financial senices industry but said that sound public policy dictates that the Committee use its best efforts to provide that evaluation. Professor Didow recounted that he saw no lessening in the price of financial ser\'ices offered by "interstate" banks but instead saw an increase in those prices. His remarks are attached as Appendix I. page 69. The Committee instructed staff to collect information on the following: (1) Conducting an outside study. (2) Bank loan loss ratio reser\e from 1983 through 1987 and where we rank nationallv. -7- (3) Gain of jobs in hani^ing industry since interstate banking went into effect in North Carolina from various sources. November 16. 1988 The Committee held its second meeting on November 16. 1988. The agenda of that meeting was directed primarily at determining credit availability in North Carolina. At the outset of the meeting Cochaiiman Da\id Diamont recognized Mr. Sulli\an. the Committee Counsel, who reviewed materials he had sent earlier to committee members. Bank Loan Loss Ratios In response to a request of Representative Fletcher for information relating to liie loan loss ratios of North Carolina State chartered and federally chartered banks, the North Carolina Ct)mmissioner of Banks supplied a chart showing, for year's end 1987 versus year's end 1984. ratios of non-peifoiming loans to total assets, non-perfoiming loans to total loans, net charge-offs to total loans for the average North Carolina Slate- chartered and federally-chartered banks selected North Carolina banks, averages for the Southeastern States and for the nation. Ihe loan loss ratios indicated that North Carolina banks averaged significantlN fewer losses from loans than either those in the Southeast and in the Nation, and that North Carolina chartered banks fared better than national banks operating in Noilh Carolina with regard to losses from loans during that period. The Commissioner's letter and chart is contained in Appendix J. page 8.3 of this report. Banking Employment Figures Commissioner Graham also sent a letter to the Committee's Counsel regarding banking employment figures in North Carolina. His letter explained that he did not object to Mr. Tom Rideout's statement at the first meeting that there had been an increase of almost 7.000 banking employees in the State from 1983 to 1987. The Commissioner conceded that interstate banking has resulted in some increases in banking employment but stated that he agreed with Professor Eisenbeis" staienicni given at the same meeting urging the Committee to view with skepticism an\ claiming to identify the effects of changes in North Carolina banking law because of "a host of other financial market changes occurring at about that time." The Committees staff presented statistics showing an increase of either 9 or 11%. using Employment Security Commission or FDIC figures. respecti\el\ . in banking employment in North Carolina from 1985. the effecti\e date of the Interstate Banking Act. to 1987. The banking employment increase compared with a 6% increase in employment in the State generally for the same period. Commissioner Grahams letter and the staffs memo on the employment question is contained in Appendix K. page 86 of this report. Number of Financial Institutions and Their Locations The staff presented graphs, using figures obtained from the Commissioner of Banks for banks, the Administrator of the Savings and LxDan Division for savings and loans, and the President of the Credit Union League, showing the number of each of these institutions and of their locations (counting the main office as a location also) by type of institution and whether state- or federall\ - -9- chartered and the total of each type and the totals of all institutions and branches for the years 1980 through 1986. Copies of those graphs are attached in Appendix L. page 90 of this report. The graphs show that although the absolute number of state- and federally-chartered banks located in Noilh Carolina declined during that period from 80 to 65 or 18.75%. the number of banking locations (main offices and branches) increased from 1822 to 1966 or 7.9%. For the same period, the number of all savings and loans in the State fell from 197 to 141 or about 28.4 percent, and the number of savings and loans locations rose from 522 to 649 or approximately 24.3 percent. Credit unions in North Carolina during the same time decreased from 358 to 292 or 18.4%; and the number of credit union locations remained the same at 415. The total number of financial institutions in North Carolina (state and federally-chartered banks, savings and loans, and credit unions) have decreased from 635 to 498 or about 21.6 percent: while the locations of these institutions have risen from 2759 to 3030 or nearly 9.8%. In response to an inquir} on recent bank location closings, the Commissioner of Banks surveyed the changes in number of banks and of their locations during the 1988 calendar year. The survey indicated that the total number of State-chartered banks (56) and national (15) banks has remained the same during the period from Januar\ I to September 30. 1988. There have been 47 state-chartered bank locations opened and 10 closed, while the corresponding number of branches of national banks openings is 24 and closings is 22. Thus, there has been a net increase of 39 branches in the State -10- during that period or an increase over the last year of 2 percent (on an annuahzed basis assuming a proportional increase for the last three months of 1988, the total number would be 52 or an increase of 2.7 percent). When those figures are added to the increase in banking locations from 1983 to 1987. there has been a net increase in branch locations of 10.0% from 1983 to September 30. 1988. The Commissioner's letter containing the results of his sur\ey is contained in Appendix M. page 98 of this report. Administration of Interstate Banking Act Finally, the Committee Counsel reported that Commissioner Graham had been asked to present the experience of his office in administering the Interstate Banking Act in connection with the application of RHNB Corporation, a South Carolina bank holding company, to acquire MetroBank. N.A. of Charlotte. The Commissioner and his most senior aides could not attend the Committee's second meeting because of a meeting of the Stale Banking Commission alread\ scheduled in Asheville for the same day. The Commissioner suggested in written comments that the Committee recommend legislation which would extend confidentiality to documents gathered during an interstate application, require publication of notice of an application for acquisition under the Interstate Banking Act. and amend the North Carolina Bank Holding Company Act of 1984 to extend the registration requirement to bank holding companies which "indirectly" control a nonbank subsidiary in North Carolina. The Committee Counsel said that the Commissioner said that he had published notice of RHNB Corporation's application without legislative direction to do so. Representatives of the Nonh Carolina Bankers Association -II- (NCBA) said thai they did not ha^e sufficient lime to study these proposals and asked to be permitted to present their views in writing. The Commissioner's written statement together with his proposed legislative changes and the NCBA's statement are attached as Appendix N. page 100 of this report. Availability of Capital and of Data on that Availability Mr. Tom McClure. Associate Director for Economic Development of the Center for Improving Mountain Living at Western Carolina University, was recognized to speak to availability and need for commercial capital in Western North Carolina. He staled that, he believed, that the interstate banking has exacerbated the problem of obtaining financing for starting and expanding small and medium sized businesses in his area. He posited three factors as explanations for the failure of interstate banking to result in improved access to credit for small businesses: 1. Smaller loans are nol significanll) less expensive to transact than larger loans. 2. Banks gaining access to rapidly growing urban markets find it easier to turn from rural markets which might be less dynamic and more difficult to analyze, and 3. Lx)an decisions centralized in the home office in the larger bank lead to delays in the decision. Mr. McClure gave several examples of difficulty in obtaining commercial credit wilh which he was familiar and which he believed leads to stifling of development in Western North Carolina. He suggested to the Committee that disclosure by banks of lending information would enable development of I "realistic interventions to address both perceived and real gaps in the capital market." Mr. McClure"s testimony is attached in Appendix O. page 107 of the report. Ms. Kalherine McKee. Associate Director of the Center for Community Self-Help in Durham, spoke to unmet financing needs of commercial ventures and potential home owners. She said that she believes that significant gaps exist in the availability of credit for business development and housing, more information is needed about the specific nature and scale of bank and thrift lending. and the Committee ought to consider how state officials might be asked to anal\ze and use the information obtained from disclosure of lending. Ms. McKees statement is attached in Appendix P. page 122. Mr. Tom Schlesinger. Director of the Southern Finance Project in Charlotte, was recognized to speak to the a\ailability of data on the effect of interstate banking and credit needs within the State. He reiterated the earlier speakers" positions that there are gaps remaining unfilled in the State's financial marketplace despite the arrival of interstate banking. He said that a gap also exists in the information needed for citizens, business owners, state officials and others to have a complete understanding of the workings of the State's economy. Mr. Schlesinger stated that some of the information exists for example on Small Business Administration loans and on mortgage loans recorded in compliance with the federal Home Mortgage Disclosure Act but it is limited and spotty. He urged several courses of action, including the following: -13- 1. Encourage financial institutions to make public regulator} agencies" assessments of their condition and enforcement actions taken on the basis of those assessments. 2. Provide a standardized accounting of the distribution of mortgage, consumer, commercial, and agricultural credit h\ geographic area and borrower type. 3. Amend the Uniform Commercial Code to require debtors and secured parties to record the dollar amount of indebtedness incurred and the value of collateralized assets. Mr. Schlesinger"s statement is contained in Appendix Q. page 1.36. Mr. Hugh Stevens. General Counsel of the North Carolina Press Association, was invited to speak to the Committee on the issue of the need for information on credit formulation and distribution. He was unable to attend but submitted a statement attached as Appendix R. page 152. Representatives of the North Carolina Bankers Association were asked if they wished to respond to the statements made regarding credit availability and need in North Carolina and the need for information regarding credit distribution. They asked to be allowed, to submit a statement in this regard, which is attached as Appendix S. page 156. NCNB Corporation's Acquisition of First Republic Bank of Texas Mr. G. Patrick Phillips. Executive Vice President of NCNB of North Carolina, explained to the Committee the legal basis under which (he NCNB Corporation acquired an interest in First Republic Bank Corporation of Texas. His statement is attached as Appendix T. page 163. -14- At the conclusion of the meeting, the Committee discussed whether it should issue a report and. if so. v-hat the report would contain. The Committee instructed the staff to prepare a draft report incorporating in its tentative findings and recommendations the legislative proposals of the Commissioner of Banks as well as the findings and recommendations on the subject of a\ailabilit\ and information related thereto proposed by Ms. Margot Saunders, of the North Carolina Legal Sersices Resource Center. Inc. December 2. 1988 At its third and final meeting the Committee reviewed the draft report and made changes it felt appropriate. The Commissioner of Banks proposed legislation to allow the pa\ment of commissions on initial bank stock offerings and indicated that he would later propose full interstate banking in North Carolina. His letter is attached in Appendix U. page 166. The amended report was then approved b\ the Committee for submission to the Legislative Research Commission. -l.S- FINDINGS AND RECOMMENDATIONS The Committee on Inierstaie Banking makes the following findings and recommendations: A. Availability of Credit and Information on that Availability The Committee on Interstate Banking finds: 1. A significant number of diverse organizations and individuals around the State helie\e that there is a serious lack of affordable credit and deposit services available to small businesses, rural communities, minorilies. and low and moderate income people and communities in North Carolina. 2. Some of the States financial institutions believe that interstate banking has proven profitable for North Carolina's banking industry and beneficial to the State economy. 3. There is no conclusive evidence that interstate banking has either improved ov worsened the problem associated with access to. and the cost and quality of. banking services. 4. There is a serious lack of information on which to base an objective conclusion about the extent of access, cost and quality problems associated with banking services in North Carolina, and about the relationship of interstate banking to those problems. 5. Major changes have been occurring in the financial semces sector, and will continue to occur. Nationwide banking, a distinct possibility in the near future, will accelerate and amplify these changes. The possibility of nationwide interstate banking makes it 16- particularly important for tlie North Carolina General Assembly to understand the relationship between the problems associated with banking services and the continued geographic expansion of banking. The Committee recommends to the 1989 Session of the General Assembly that: 1. The 1989 General Assembly search for and create ways to determine the extent of problems of access to banking services experienced by small businesses, rural communities, minorities, and low and moderate income people and communities in Nortli Carolina. 2. To the extent that there are problems with access to banking services in North Carolina, the General Assembly should create methods to ameliorate the problems. 3. The Legislative Research Commission be authorized to continue the study of interstate banking. B. Regional Reciprocal Interstate Banking Act The Committee on Interstate Banking finds that: I. General Statute (G.S.) 53-99(b) currently provides, among other matters, for confidentiality of certain records gathered by the Commissioner of Banks compiled in examining, auditing and investigating the operations of a bank as well as records of information and reports submitted by banks to federal regulatory authorities, if these records would be confidential under federal law . 17- 2. In addition to federal regulatory information, the Banking Commission also requests biographical data and financial statement on all of the current or proposed officers or directors of the to-be- acquired bank or bank holding company. 3. The biographical data is personal and sensitive and not necessary to be published in order to process the application. 4. Although this States banking law generally provides for publication of notice of matters affecting the general public, notice of applications for acquisitions under the Interstate Banking Act are not presently required to be published. The Committee on Interstate Banking, therefore, recommends that: 1. G.S. 5.^-99(b) be amended to provide for confidentiality of records compiled or received in connection with an application under the Interstate Banking Act. 2. G.S. 53-211 be amended to require publication of notice of applications for acquisitions under the Interstate Banking Act. The Committee's legislative proposal containing these amendments is found in Appendix V. page 172. C. North Carolina Bank Holding Company Act of 1984 The Committee finds that: I. Under the NCBHC. a bank holding company (BHC) owning a North Carolina federally- or State-chartered bank or acquiring control over a nonbank subsidiary with offices in this State must register with the Commissioner. -18- 2. A non-resident hank which is a wholly-owned siihsidiary of a hank holding company could purchase a nonhank subsidiary having an office in North Carolina and neither that bank nor its parent BHC would be required to register under the NCBHC. The Committee on Interstate Banking recommends that the General Assembly amend G.S. 53-227 to require BHCs acquiring control over a nonbank subsidiary register under the NCBHC. The Committee's legislative proposal is contained in Appendix W. page 177. D. Banking Statutes The Committee on Interstate Banking finds: 1. Community banks concentrate deli\er> of their banking services atid products in the communities in which they are organized. 2. Every reasonable step should be taken to foster the growth and development of community hanks. 3. G.S. 53-6. which prohibits a bank from paying commissions on the sale of its organizational stock, is an impediment to the formation of community banks. 4. Twenty-eight of 42 states responding to the North Carolina Banking Commissioner's survey of other states" bank regulators lake the position that commissions on the sale of organizational stock aie permitted. The Committee recommends to the 1989 Session of the General Assembly that, in order to promote development of community banks. G.S. 53-6 be -19- amended to repeal the provision prohibiting payment of commissions on initial offerings of bank stock. The Committee's legislative proposal containing the amendment is found in Appendix X. page 178. -20- APPENDIX A GENERAL ASSEMBLY OF NORTH CAROLINA 1987 SESSION RATIFIED BILL CHARIER 873 HOUSE BILL I AN ACT TO AUTHORIZE STUDIES B^ THE LEGISLATIVE RESEARCH COMMISSION. TO CREATE AND CONTINUE VARIOUS COMMITTEES AND COMMISSIONS. TO MAKE APPROPRIATIONS 1 HEREFOR. AND TO AMEND STATUTORY LAW. The General Assembly of N01II1 Carolina enacts: -E as "The Sluciv Commissions and PART 1. TITLE Section 1 . This act shall he known Commi iltees Act of 1987 " PART II.--— LEGISLATIVE RESEARCH COMMISSION Sec. 2.1. The Legislaii\e Research Commission ma\ study the topics listed below. Listed with each topic is the 1987 bill or resolution that originallx' proposed the issue or study and the name of the sponsor. The Commission may consider the 01 iginal bill or resolution in determining the nature, scope and aspects (»f the stud\ . The topics are: (47F) Interstate Banking (H.B. 1924-Diamont). Sec. 2.6. Reporting Dales. For each of the topics the Legislative Research Commission decides to stud\ under this act or pursuant to G.S. 120.30.17(1). the Commission ma\ report its findings, together with anv recommended legislation to the 1989 General Assembly. Sec. 2.7. Bills and Resolution References. The listing of the original bill or resolution in this Part is for reference purposes only and shall not be deemed to have incorporated by reference any of the substantive provisions contained in the original bill or resolution. Sec. 31. This act is effective on Jul\ 1. 1987. 1 - GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 19S7 GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 1987 H 1 HOUSE BILL 1924 Short Title: Interstate Banking Study. (Public) Sponsors: Representati\es Diamoni: Fletcher. Bowman. Referred to: Appropriations. May 27. 1987 1 A BILL TO BE ENTITLED 2 AN ACT TO CREATE THE INTERSTATE BANKING STUDY COMMISSION. 3 Whereas, the General Assembly in 198.3 passed the North Carolina Regional 4 Reciprocal Banking Act which allows regional bank holding companies to acquire North 5 Carolina banks: and 6 Whereas, the Legislature is currently considering legislation lo include Texas 7 in the North Carolina Interstate Banking Region: and 8 Whereas, the Texas economy is in a seriously depressed state and its 9 problems mirrored in the problems of Texas banks: and 10 Whereas, the enormous changes occurring in the financial industry brought 11 about by deregulation, technological innovation, and international economic upheavals. 12 have produced larger and fewer institutions, and have shifted credit-making decisions 13 away from local communities: Now. therefore. 14 The General Assembly of North Carolina enacts: 15 Section I. The North Carolina Interstate Banking Study Commission is 16 hereby created. •22- GENERAL ASSEMBLY OF NORTH CAROLINA SESSION I9S7 1 2 3 Sec. 3. The Commission shall study the impact that regional interstate 4 banking has had on North Carolina's communities, firms and people. The scope of the 5 study shall include, but not be limited to: 6 (a) The statewide distribution of credit and its impacts on traditional 7 industries, small businesses, depressed counties, agriculture, internationally traded 8 sectors of the economy, minority and women-owned businesses; and housing markets: 9 (b) The cost and availability of other financial ser\'ices including deposit 10 accounts: 11 (c) The pricing of financial sersices: 12 (d) The direct and indirect employment effects of regional inierstaie 13 banking: 14 (e) The level of competition between financial institutions in the Stale: and 15 (f) The effects of financial product deregulation on the insurance, real 16 estate, securities and export industries. 17 Sec. 4. The Commission shall submit a final report of its findings and 18 recommendations to the General Assembly on or before the first day of the 1980 19 Session of the General Assembly by filing the repon with the President of the Senate 20 and the Speaker of the House of Representatives. Upon filing its final report, (he 21 Commission shall terminate. The report of the Commission shall summarize the 22 information obtained in the course of its inquin.'. set forth any findings and conclusions. 23 and recommend such administrati\e actions or legislative actions that may be necessar\. 24 If legislation is recommended, the Commission shall prepare and submit with its repoii 25 appropriate bills. 26 27 28 29 Sec. 8. This act is effective upon ratification. •23- APPENDIX B MEMBERSHIP OF LRC COMMITTEE ON INTERSTATE BANKING Pres. Pro Jem's Appointments Sen. A. D. Guv. Cochair Post Office Box 340 Jacksonville. NC 28541-0340 (919) 346-4171 Sen. Harokl W. Harclison Post Office Box 12805 Raleigh. NC 27605 (919) 755-1988 Sen. R. C. Soles. Jr. Post Office Box 6 Tabor City. NC 28463 (919) 653-2015 Speaker's Appointments Rep. David H. Diamont. Cochair Post Office Box 784 Pilot Mountain. NC 27041 (919) 368-4591 Rep. Ruth Easterling 81 1 Bronilev Road. No. 1 Charlotte. NC 28207 (7041 375-5934 Rep. Ra\ Fletcher Post Office Box 68 Vaklese. NC 28690 (704) 874-0701 Mr. Overton "Buck" Suiter Planter's National Bank and Trust Company Church Street Ahoskie. NC 27910 (919) 332-3171 Mr. Curtis M. Thompson Vice President Durham Life Insurance Co. Post Office Box 27807 Raleigh. NC 2761 1 (919) 782-61 10 Rep. John H. Kerr. Ill Post Office Box 1616 I 1 7 Ormond Avenue Goldshoro. NC 27533 (919) 734-1841 1616 Rep. Edward N. Warren 412 BB<^T Building 2000 Venture Tower Drive Giecn\ille. NC 27834 (919) 758-1543 Staff: Mr. Terrence D. Sullivan Legislative Ser\ices Office (919) 733 2578 Clerk: LRC MEMBER: Ms. Sue Flovd (919) 733-5874 (O) (919) 496-4359 (H) Sen. A. D. Guy -24- APPENDIX C INTERSTATE BANKING MEETING NOTICE MAILING LIST Mr. Robert Price Jordan. Price. Wall. Grav & Jones P. O. Box 2021 Raleigh. NC 27602 Mr. Robert L. Anderson VP - Legal Division First Union Corporation First Union Plaza LEG Charlotte. NC 28288 Ms. Margot Saunders NC Legislative Ser\ices Resource Center P. O. Box 27343 Raleigh. NC 2761 I Mr. William C. Rustin. Jr. NC Retail Merchants Assoc. P. O. Box 300002 Raleigh. NC 27622 Mr. Tom R. Schlesinger Director of Research Southern Finance Project 517 E. Kingston Charlotte. NC 28203 Ms. Cynthia Cover Citizens for Business & Industry P. O. Box 2508 Raleigh. NC 27602 Mr. Paul H. Stock Executive VP and Counsel NC League of Savings Institutions P. O. Box 19999 Raleigh. NC 27619-1999 Mr. George King. Administrator Sa\ings & Uian Division NC Department of Commerce 430 Salisbury Street Raleigh. NC" 27602 The Hon. William T. Graham Commissioner of Banks Banking Commission 430 North Salisbury Street Raleigh. NC 27602 Mr. Edmund D. A\cock NC Bankers Association P. O. Box 30600 Raleigh. NC 27622 Mr. Robert C. Wheeler NC Industrial Development Assoc. P. O. Box 30609 Raleigh. NC 27622 Mr. John R. Jordan. Jr. Jordan. Price. Wall. Grav & Jones P. O. Box 2021 Raleigh. NC 27602 Ms. Kim Kemeson P. O. Box 191 Raleigh. NC 27602 Mr. Kenneth Fern. Jr. Southern Legislati\e Conf. 3384 Peachiree Road. NE Suite 830 Atlanta. GA 30326 -2^ Mr. Chuck Barbour NC Consumer Finance Assoc. 3202 Women's Club Drive Suite 221 Raleigh. NC 27609 Dr. Robert Eisenbeis Wachovia Professor of Banking School of Business Administration CB 3490 - Carroll Hall - UNC Chapel Hill. NC 27514 Ms. Susan Levi Southern Growth Policies Board P. O. Box 12293 RTP. NC 27709 Mr. Mark Leggett NCNB One NCNB Plaza Charlotte. NC 28255 Mr. Rock Poisson NCNB Plaza T-18-7 Charlotte. NC 28255 Ms. Katherine McKee Self-Help Credit Union n E. Chapel Hill Street Durham. NC 27701 Mr. Peter K. Rumsey 1 12 N. Person Street Raleigh. NC 27601 -26- APPENDIX D Revie\v of Legislative Histon of Interstate Financial Institutions Legislation in North Carolina Prepared hy Terrence D. Sullivan. Commillee Counsel for Presentation at LRCs Cummitlee on Interstate Banking Meeting on March 16. 1988* Introduction In 1982 the Southern Regional Banking Committee of the Southern Regional Growth Policies Board recommended that the 12 SRGP stales enact legislation to permit the entrv of out-of-state hank holding companies hut that this entr\ be limited to the Southern Region for a specific time with pro\ision for national agreements beyond the limited time. In making this suggestion the SRGP was aware of seven states which had alreadv availed themselves of a significant provision of Federal law-the Douglas amendment. That law- Section 3(d) |12 U.S.C. 1842 (d)l of the Bank Holding Company Act of 1 956-- prohibits a hank holding company from acquiring a hank outside the hank holding compan\ s home state unless that acquisition is specincall\ allowed by the statutes of the state of the to-be-acquired bank. Three New England states established a reciprocal arrangement by which one state's BHC could acquire the BHC or bank in a sister state on a reciprocal basis in that region. Florida quickl\ followed suit in taking advantage of the Douglas amendment proviso when it in that same year proposed similar reciprocity among the states in the South. During the 198.3 Session of the General Assembly. Senator James H. Edwards, introduced Senate Joint Resolution 381. directing the Legislative Research Commission to study the system of "present regulations and tax levies applicable to commercial banks, savings and loan associations and credit unions." In March of 1984. the North Carolina Bankers Association presented to the LRC Committee the draft of what was to become the North Carolina Regional Reciprocal Interstate Banking Act. The predecessor-in-name of the North Carolina League of Savings Institutions propo.sed that similar legislation be adopted for the regional reciprocal acquisition of S&L"s and their holding companies. At the same time and to the same committee, the then-Commissioner of Banks. Mr. Jim Currie. presented legislatioii to require the registration and examination of bank holding companies in North Carolina. The Legislative Research Commission in transmitting the report of its committee recommended the proposed Regional Reciprocal Interstate Banking Act and similar legislation for S&L's to the 1984 Short Session which like the 1988 Session is a limited one. The LRC took no action on the bank holding company pioposal. The 1984 Session of the General Assembly passed as one bill- the Interstate Banking proposal, effective on Januarv 1. 1985: and a proposal requiring the registration of bank holding companies in North Carolina. ■27- Brief Analysis of 1984 Legislation The North Carolina Regional Reciprocal Banking Act (Article 17 of Chapter 53 of the General Statutes), in brief, allows a bank holding company (BHC) in the dellnetl region. upon the approval of the Commissioner of Banks, to acquire Noilh Carolina banks and BHC"s. The "Region" consists the following jurisdictions besides. North Carolina - Alabama. Arkansas. Florida. Georgia. Kentucky. Louisiana. Maryland. Mississippi. South Carolina. Tennessee. Virginia. West Virginia and the District of Columbia. On application for initial entry into North Carolina, the Commissioner must determine that: 1. the laws of the state in which the regional has its principal place of business generally permits all N.C. BHC's to make similar acquisitions (i.e. the reciprocit\ lest): 2. that the laws of the state in which the regional has its principal place of business would permit the to be-acquired N.C. bank or BHC to acquire the regional (i.e. the mirror-image test): 3. the N.C. bank has been in existence and continuously operating for five years or in the case of a N.C. BHC. all of its bank subsidiaries have a similar status: 4. that the Commissioner make the acquisition subject to the same criteria that would be applied to a N.C. entity make an acquisition in the state of the regionals principal place of business but which would not appl} to that state's BHC"s. where all of their subsidiaries are located in that state (i.e. only that criteria applicable to those BHC"s outside the jurisdiction). On subsequent applications for acquisition in North Carolina, the Commissioner is to approve those acquisitions if the last two conditions listed under initial acquisitions exist-- i.e. those relating to term of existence of the to-be-acquired N.C. entity and subjecting the acquisition to any criteria solely applicable to interstate acquisitions. The Act. among other matters, contains pro\isions allowing the Commissioner to require periodic reports of BHCs and granting enforcement powers including divestiture of N.C. entities wheie the BHC is no k)nger a legional. The North Carolina Bank Holding Company Act of 1984 requires registration of BHCs in North Carolina, prohibits nonhank banks, and gives to the Commissioner cease and desist authority over BHC and nonbank banks operating in violation of N.C. banking laws. Included in the bank holding company legislation was a prohibition for any BHC or other company to own a bank that does not both offer checking accounts and make commercial loans. To be considered a "bank" for the Federal Bank Holding Company Act. an entity must be engaged in making commercial loans and accept demand deposits. By stripping away certain ke> powers, entities were enable to escape certain federal regulations, for example, on geographical expansion and underwriting securities. The 1984 Session of the General Assembly also enacted the North Carolina Regional Reciprocal Savings and Loan Acquisition Act. which tracks to a great extent the statutory scheme in the Interstate Banking Act. -28- Brief Analysis of Amendments to 1984 Legislation The Bank Holding Company Act was amended in 1985 to make various technical amendments. The 1985 legislation required that the Commissioner of Banks evaluate a regional BHC's proposed acquisition under the same criteria b\ which a N.C. BHC seeking such an acquisition in the regional BHC"s home state (principal place of business) would be evaluated and that if the regional BHCs "home stales" criteria are no more stringent than N.C."s existing criteria, the Commissioner must find that the proposed acquisition would be financially sound for both parties and that the acquiring bank and the proposed officers of the new bank to be formed are qualified to operate a North Carolina bank. The Interstate S&L Act has not been amended since its ratification. Since it became effective in 1985. the Interstate Banking Act has been amended twice. Once, in 1985. to insert the Banking Commission, itself, as an interim level for an appeal from an ad\erse decision of the Commissioner. In 1986. the Act was amended to remove a restriction against foreign control of regional bank holding companies to avoid a constitutional challenge which might ha\e in\alidated the entire act. The 1987 General Assembly during its 1988 session amended the Interstate Banking Act twice. The first Act. Chapter 898. deleted the requirement in initial acquisitions that the state containing the regional BHCs principal place of business allow all N.C. BHC's to make acquisitions there and to eliminate on subsequent acquisitions by a regional already in N.C. of N.C. banks or BHCs that they he in existence and continuously operating for more than 5 years. The second Act. Chapter 899. added Texas to the pre\iously designated 1 .'^ other Southeastern jurisdictions allowed to acquire North Carolina banks and bank holding companies pursuant to the Interstate Banking Act. * Updated to take into account actions of the 1988 Session of the General Assembly. -29- APPENDIX E ARTICLE 17. North Carolina Regional Reciprocal Banking Act. §53-209. Title. This Article shall be known and mav he cited as the North Carolina Regional Reciprocal Banking Act. (1983 (Reg. Sess'.. 1984). c. 1II3. s. I.) §53-210. Definitions. Notwithstanding any other section of this Chapter, for the purposes of this Article: ( 1 ) "Acquire" means: a. The merger or consolidation of one bank holding compan\ with another bank holding company: b. The acquisition by a bank ht>lding compan\ of direct or indirect ownership or control of voting shares of another bank ht)lding company or a bank. if. after such acquisition, the bank holding company making the acquisition will directly or indirectly own or control more than fne percent (5%) of any class of voting shares of the other bank holding company or the bank: c. The direct or indirect acquisition by a bank holding company of all or substantially all of the assets of another bank holding company or of a bank: or d. Any other action that would result in direct or indirect control by a bank holding company of another bank holding compan\ or a bank. (2) "Bank" means an} "insured bank" as such term is defined in Section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)) or an\ institution eligible to become an "insured bank" as such term is defined therein, which, in either e\ent. a. Accepts deposits that the depositor has a legal right to withdraw on demand; and b. Engages in the business of making commercial loans. (3) "Banking office" means the principal office of a bank, any branch of a bank, any teller's window of a bank or any other office at which a bank accepts deposits: Pro\ided. however, that "banking office" shall not mean: a. Unmanned automatic teller machines, point of sale terminals or other similar unmanned electronic banking facilities at which deposits ma> be accepted: b. Offices located outside the United Stales: or c. Lxmn production offices, representative offices or other offices at which deposits are not accepted. (4) "Bank holding company" has the meaning set forth in Section 2(a) ( 1 ) of the Bank Holding Company Act of 1956 as amended (12 U.S.C. 1841(a)(1)). (5) "Commissioner" means the Commissioner of Banks of this State. (6) "Control" has the meaning set foith in Section 2(a) (2) of the Bank Holding Company Act of 1956 as amended (12 U.S.C. 1841(a)(2)). (7) "Deposits" means all demand, time, and savings deposits, without regard to the location of the depositor: Provided, however, that "deposits" shall not include any deposits by banks. For purposes of this Article, determination of deposits shall be made with reference to regulatory repoiis of condition or similar repoils made by or to state and federal regulatory authorities. -30- a. Is organized under the laws of this State or of the United States: and b. Has hanking offices located only in (his State. (9) "North Carolina bank holding company" means a bank holding company: a. That has its principal place of business in this State: b. The North Carolina bank and regional bank subsidiaries of which hold more than eighty percent (80%) of the total deposits held by all of its bank subsidiaries, other than bank subsidiaries controlled by it in accordance with G.S. 53-212 of this Article: and c. That is not controlled by a bank holding company other than a North Carolina bank holding company. (10) "Principal place of business" of a bank holding company means the state in which the total deposits held by the banking offices of the bank holding company's bank subsidiaries are the largest. (11) "Region" means the states of Alabama. Arkansas. Florida. Georgia. Kentucky. Louisiana. Maryland. Mississippi. North Carolina. South Carolina. Tennessee, lexas. Virginia and West Virginia, and the District of Columbia. (12) "Regional bank" means a bank that: a. Is organized under the laws of the United States or of one of the states in the region other than North Carolina: and b. Has banking offices located onl\ in states within the region. (13) "Regional bank holding com pan \" means a bank holding company: a. That has its principal place of business in a stale within the region other than North Carolina: b. The regional bank and North Carolina bank subsidiaries of which hold more than eighty percent (80'/'f) of the total deposits held by all of its bank subsidiaries, other than bank subsidiaries controlled by it in accordance with G.S 53-212 of this Article: and c. That is not controlled b\ a bank holding company other than a regional bank holding company. d. Repealed by Session Laws 1985 (Reg. Sess.. 1986). c. 862. s. 3. (14) "State" means any state of the United States or the District of Columbia. (15) "Subsidiar\ " has the meaning set forth in Section 2(d) of the Bank Holding Company Act of 1956 as amended (12 U.S.C. 1841(d)). (1983 (Reg. Sess.. 1984). c. I I 13. s.'l: 1985 (Reg. Sess.. I98h). c. 862: 1987 (Reg. Sess.. 1988. c. 899. s.l.) §53-211. Acquisitions by regional bank holding companies. (a) A regional bank holding company that does not have a North Carolina bank subsidiary (other than a North Carolina bank subsidiary that was acquired either pursuant to Section 1 16 or Section 123 of the Gam-St Germain Depository Institutions Act of 1982 (12 U.S.C. I730a(m). 1823(f)) or in the regular course of securing or collecting a debt pre\iously contracted in good faith, as pro\ided in Section 3(a) of the Bank Holding Company Act of 1956 as amended (12 U.S.C. 1842(a))) may acquire a North Carolina bank holding company or a North Carolina bank with the approval of the Commissioner. The regional bank holding company shall submit to the Commissioner an application for approval of such acquisition, which application shall be approved only if: ( I ) The Commissioner determines that the laws of the state in which the regional bank holding compan\ making the acquisition has its principal place of business permit ■31- North Carolina hank holding companies to acquire hanks and bank holding companies in that state: (2) The Commissioner determines that the laws of the state in which the regional bank holding company making the acquisition has its principal place of business pennit such regional bank holding company to he acquired by the North Carolina hank holding company or North Carolina hank sought to be acquired. For the purposes of this subsection, a North Carolina hank shall be treated as if it were a North Carolina hank holding company: (3) The Commissioner determines either that the North Carolina hank sought to be acquired has been in existence and continuously operating for more than five years or that all of the hank subsidiaries of the Noi1h Carolina bank holding company sought to he acquired ha\e been in existence and continuously operating lor more than five years: Provided, that the Commissioner may approve the acquisition by a regional hank holding company of all or substantially all of the shares o\ a bank organized solely for the purpose of facilitating the acquisition of a bank that has been in existence and continuously operating as a hank for more than five years: and (4) The Commissioner makes the acquisition subject to any conditions, restrictions, requirements or other limitations that wc)uld apply to the acquisition b\ a North Carolina hank holding company of a hank or bank holding conipan\ in the state where the regional bank holding company making the acquisition has its principal place of business hut that woukl not appl\ to the acquisition of a bank or bank holding company in such state by a bank holding coinpany all the hank subsidiaries of which are located in that stale. (h) (h) A regional hank holding compan\ that has a North Carolina bank subsidiary (other than a North Carolina hank subsidiary that was acquired either pursuant to Section 116 or Section 123 of the Garn-St. Germain Depository Institutitms Act of 1982 (12 U.S.C. I730a(m). 1823 (f) or in the regular course of securing or collecting a debt previousl} contracted in good faith, as pro\ided in Section 3(a) of the Bank Holding Compan\ Act of 1956 as amended (12 U.S.C. 1842(a)) may acquire any Nonh Carolina bank or North Carolina bank holding company with (he approval of the Commissioner. The regional bank holding company shall submit to the Commissioner an application for approval of such acquisition, which application shall he approved only if the Commissioner makes the acquisition subject to an\ conditions, restrictions, requirements or other limitations that would appi> to the acquisition by a North Caiolina hank holding company of a hank or bank holding company in the State where the regional bank holding compan\ making the acquisition has its principal place of business hut that would not appl> to the acquisition of a bank or hank holding company in such state by a hank holding company all the hank subsidiaries of which are located in that state. (c) The Commissioner shall rule on any application submitted under this section not later than 90 days following the dale of submission of a complete application. If the Commissioner fails to rule on ihe application within the requisite 90-day period, the failure to rule shall he deemed a final decision of the Commissioner approving Ihe application. (1983 (Reg. Sess.. 1984). c. 1113. s. I: 1987 (Reg. Sess.. 1988). c. 898. ss. I. 2.) §53-212. Exceptions. A North Carolina hank holding company, a North Carolina bank, a regional bank holding company, or a regional bank may acquire or control, and shall not cease to be a North Carolina bank holding companv . a North Carolina bank, a regional bank holding company, or a regional bank, as the case ma\ be. by virtue of its acquisition or control of: (1) A hank having banking offices in a state not within the region, if such hank has been acquired pursuant to the provisions of Section 116 or Section 123 of the Garn-St Gennain Depository Institutions Act of 1982 (12 U.S.C. I730a(m). 1823(f)): (2) A bank having banking offices in a state not within the region, if such bank has been acquired in the regular course of securing or collecting a debt previously contracted in good faith, as provided in Section 3(a) of the Bank Holding Company Act of I9.'>6 as amended (12 U.S.C. 1842(a)). and if the bank or bank holding company divests the securities or assets acquired within two years of the date of acquisition. A North Carolina bank, a North Carolina bank holding company, a regional bank holding company, or a regional bank may retain these interests for up to three additional periods of one year each if the Commissioner determines that the required divestiture would create undue fmancial difficulties for that bank or bank holding company: or (3) A bank or corporation organized under the laws of the United Slates or of any state and operating under Section 23 or Section 25(a) of the Federal Reserve Act as amended (12 U.S.C. 601 or 611-31) or a hank or bank holding company organized under the laws of a foreign country that is principallx engaged in business outside the United Slates and thai either has no banking office in the United States or has banking offices in the United States that are engaged onl\ in business activities permissible for a corporation operating under Section 25 or Section 25(a) of the Federal Reserve Act as amended. (1983 (Reg. Sess.. 1984). c. 1 I 13. s. I.) §53-213. Prohibitions. (a) Except as expressl\ permitted by federal law. no bank holding company that is not either a North Carolina bank holding company or a regional bank holding company shall acquire a North Carolina bank holding company or a North Carolina bank. (b) Except as required by federal law. a North Carolina bank holding company or a regional bank holding company that ceases to be a North Carolina bank holding company or a regional bank holding company shall as soon as practicable and. in all events, within one \ear after such e\enl divest itself of control of all North Carolina bank holding companies and all North Carolina banks: Provided, however, that such divestiture shall not be required if the North Carolina bank holding company or the regional bank holding company ceases to be a North Carolina bank holding company or a regional bank holding company, as the case ma\ be. because of an increase in ihe deposits held by bank subsidiaries not located within the region and if such increase is not the result of the acquisition of a bank or bank holding company. (1983 (Reg. Sess.. 1984). c. 11 13. s. 1.) §53-214. Applicable laws, rules and regulations. (a) Any North Carolina bank that is controlled by a bank holding company that is not a North Carolina bank holding compan\ shall be subject to all laws of this State and all rules and regulations under such laus that are applicable to North Carolina banks that are controlled by North Carolina bank holding companies. (b) Notwithstanding the proxisions of G.S. 53-95. the Commissioner may promulgate rules, including the imposition of a leasonable application and administration fee. to implement and effectuate the provisions of this Article. (1983 (Reg. Sess.. 1984). c. 1113. s. 1.) §53-215. Appeal of Commissioner's decision. Any aggrieved part\ in a proceeding under G.S. 53-211. G.S. 53-212(2) or G.S. 53-227.1 may. within 30 days after final decision of the Commissioner, appeal his ■33- decision lo the Stale Banking Commission. The Stale Banking Commission, wiihin 30 days ot receipt of the notice of appeal, shall appro\e. disapprove or modif\ the Commissioner's decision. Failure of the State Banking Commission to act within 30 days of receipt ol notice of appeal shall constitute a final decision of the Stale Banking Commission approving the decision of the Commissioner. Notwithstanding any other provision of law. any aggrieved party to a decision of the State Banking Commission, within 30 days after final decision of the Commission, ma) appeal directly to the North Carolina Court of Appeals for judicial review on the record. (1983 (Reg. Sess.. 1984). c. 1113. s. I: 1985. c. 683. s. 3.) §53-216. Periodic reports; interstate agreements. The Commissioner may from time to time require reports under oath in such scope and detail as he may reasonably determine of each regional bank holding company subject to this Article for the purpose of assuring continuing compliance with the pro\isions of this Article. The Commissioner may enter into cooperative agreements with other bank regulatory authorities for the periodic examination of any regional bank holding company that has a North Carolina bank subsidiary and may accept reports of examination and other records from such authorities in lieu of conducting its own examinations. The Commissioner may enter into joint actions with other bank regulatory authorities having concurrent jurisdiction o\er any regional bank holding company that has a North Carolina bank subsidiary or may take such actions independent!) to carrv out its responsibilities under this Article and assure compliance with the provisions of this Article and the applicable banking laws of this State. (1983 (Reg. Sess.. 1984). c. II 13. s. 1.) §53-217. Enforcement. The Commissioner shall ha\e the power to enforce the provisions of this Article, including the divestiture requirement of G.S. 53-2 I 3(h). through an action in any court of this State or any other state or in any court of the United States, as pro\ided in G.S. 53-94 and G.S. 53-134. for the purpose of obtaining an appropriate remedy for violation of anv pro\ision of this Article, including such criminal penalties as are contemplated by G.S. 53-134. (1983 (Reg. Sess.. 1984). c. 1113. s. 1.) §53-218. Nonseverability. It is the purpose of this Article 17 to facilitate orderly development of banking organizations that have banking offices in more than one state within the region. It is not the purpose of this Article to authorize acquisitions of North Carolina bank holding companies or Noiih Carolina banks by bank holding companies that do not have their principal place of business in this State on an) basis other than as expressly provided in tliis Anicle. Therefore, if any portion of this Article pertaining to the terms and conditions for and limitations upon acquisition of North Carolina bank holding companies and North Carolina banks by bank holding companies that do not ha\e their principal place of business in this State is deteimined to be in\alid for any reason by a final nonappealable order of any North Carolina or federal court of competent jurisdiction, then this entire Article shall be null and void in its entirety and shall be of no further force or effect from the effective date of such order: Provided, however, that any transaction that has been lawfully consummated pursuant to this Article prior to a determination of invaliditv shall be unaffected bv such determination. (1983 (Reg. Sess.. 1984). c. II 13. s. l'.) §§53-219 to 53-224. Reserved for future codification purposes. ARTICLE 18. Bank Holding Company Act of 1984. §53-225. Title and scope. (a) This Article siiall be icnown and may he cited as the North Carohna Bank Holding Company Act of 1984. (b). (c) Repealed by Session Laws 1983. c. 683. s. L effective July 10. 1985. (d) Except for the provisions of G.S. 53-227. L nothing in this Article shall be deemed to apply to the registration, examination or supenision of banks or trust companies. (1983 (Reg. Sess.. 1984). c. 1113. s. 1: 1985. c. 683. s. 1.) §53-226. Derinitions. For the purposes of this Article: (1) "Bank" means any insured bank as the term is defined in Section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(h)). or any insliiution eligible lo become an insured bank as the tenn is defined therein, which, in either event: a. Accepts deposits that the depositor has a legal right to withdraw on demand: and b. Engages in the business ot making commercial loans. (2) "Bank holding company" means any compan\ which has control over any bank. (3) "Commissioner" means the Commissioner of Banks of this Slate. (4) "Company" means a corporation, joint stock company, business trust, partnership, voting trust, association, and any similar organized group of persons, whether incorporated or not. and uhether or not organized under the laws of this Stale or any other state or any territor\ or possession of the United States or under the laws of the foreign countr\ . territory, colony or possession thereof, other than a corporation all the capital of which is owned b\ the United Stales or a corporation which is chartered by the Congress of the United States: "company" includes subsidiary and parent companies. (5) "Control" means that: a. Any compan\ directly or indirectly or acting through one or more persons owns, controls, or has power to vote twent_\- fi\e per centum (25 /c) or more of the voting securities of the bank: b. The company controls in an\ manner the election of a majority of the directors, managers or trustees of the bank or company: or c. The Commissioner determines, after notice and opportunity for hearing, that the company directly or indirectly exercises a controlling influence over the management or policies of the bank or company. (6) "Subsidiary", with respect to a bank holding company, means: a. Any company twenty-five per centum (25 "X) or more of whose \oting shares (excluding shares owned by the United States oi by any company wholly owned by the United States) is held by it with power lo vole: b. Any company the election of a majority of whose directors is controlled in any manner by a bank holding company: or c. Any company with respect lo the management or policies of which a bank holding company has the power, directly or indirectly, to exercise control, as deteimined by the Commissioner. (7) For the purposes of any proceeding under subdivisions (5)c. and (6)c. of this section, there is a presumption that an\ company which directly or indirectly owns, controls, or has power lo vote less than five percent (5%) of any class of voting -35- securities of a given bank or compan\ does not have control over that hank or company. (1983 (Reg. Sess.. 19X4). c. 111.3. s. I.) §53-227. Registration of bank holding companies. Every bank holding company, not later than July 1. 1985. or within 180 days after becoming a bank holding company controlling a North Carolina federally or State-chartered bank or banks, or within 180 days after acquiring control over a nonbank subsidiary or subsidiaries ha\ing offices located in this State shall register with the Commissioner' on forms approved by the Commissioner. (1983 (Reg. Sess.. 1984), c. 1 1 13. s. I.) §53-227.1. Criteria for certain bank holding company acquisitions. (a) In addition to the criteria set forth in G.S. 53-21 1(a) and (b) to be used by the Commissioner in re\iewing applications for acquisitions of North Carolina banks and bank holding companies, the Commissioner shall: (1) Apply the criteria which would be applied to a North Carolina bank holding company making an acquisition in another state by the regulatory authorities of the State in which Fhe applicant has its principal place of business, as defmed by G.S. 53-210(10): and (2) Shall approve that application only if the Commissioner finds it meets those additional criteria. (b) in the event that the state in which the applicant has its principal place of business has no criteria other than the criteria similar to those set fonh in G.S. 53-21 1(a) and (b). the Commissioner shall approve that application only if he determines that: (1) The proposed acquisition would be not detrimental to the safety and soundness of the applicant or of the North Carolina bank or bank holding company which applicant seeks to control or whose stock is to be acquired: and (2) The applicant, its directors and officers, if applicable, and any proposed new directors and officers of the North Carolina bank or bank holding company which applicant seeks to control or whose stock is to be acquired, are qualified by character, experience and financial responsibilitv to control and operate a North Carolina bank. (1985. c. 683. s. 2.) §53-22S. Cease and desist. Upon a finding that any action of a bank holding compan\ or nonbank subsidiary subject to this Article may be in \iolation of any North Carolina banking law. the Commissioner, after a reasonable notice to the bank holding company or its nonbank subsidiary and an opportunity for it to be heard, shall have the authority to order it to cease and desist from such action. If the bank holding company or nonbank subsidiary fails to appeal such decision in accordance with G.S. 53-231 hereof and continues to engage in such action in violation of the Commissioner's order to cease and desist such action, it shall be subject to a penalty of one thousand dollars ($1,000). to be recovered with costs by the Commissioner in any court of competent jurisdiction in a civil action prosecuted by the Commissioner. The penalty provision of this section shall be in addition to and not in lieu of any other provision of law applicable to a bank holding companv's or its nonbank subsidiary's failure to comply with an order of the Commissioner. ('l983 (Reg. Sess.. 1984). c. 'l 1 13. s. I.) §53-229, Acquisition and control of certain nonbank banking institutions. Notwithstanding any other provision of this Article or any other provision of the General Statutes of this Stale, no bank holding company or any other company may acquire or control any banking institution that: ■36- (1) Has offices located in this State: and (2) Is not a bank as defined in G.S. 53-226(1 ) of this Article. For purposes of this section, "company" means any corporation, partnership, business trust, association, or similar organization, or an> other trust unless by its terms it must terminate within 25 years or not later than 21 years and 10 months after tlie death of individuals living on the effective date of the trust, and "banking institution" means any institution organized under Article 2 of Chapter 53 (G.S. 53-2. et seq.) or Article I I of Chapter 53 (G.S. 53- 136. et seq.) of the General Statutes of this State or under Chapter 2 of Title 12 of the United States Code (12 U.S.C. § 21. el seq.). Provided, the provisions of G.S. 53-229 shall not appi} to applications by any company which is chartered by the Congress of the United States and which application is pending before the Commissioner on Julv 7. 1984. ( 1983 (Reg. Sess.. 1984). c. 1113. s. 1.) §53-230. Rules. Notwithstanding the provision of G.S. 53-95. the Commissioner may promulgate such reasonable rules as max be necessarv to effectuate the purposes of this Article. (1983 (Reg. Sess.. 1984). c. 'll 13. s. 1.) §53-231. Appeal of Commissioner's decision. Notwithstanding any other piovision of law. any aggrieved party may. within 30 days after final decision of the Commissioner and by written notice to the Commissioner, appeal directly to the North Carolina Couil of Appeals for judicial review on the record. In the event of an appeal, the Commissioner shall certify the record to the Clerk of the Court of Appeals within 30 days thereafter. Such record shall include all memoranda, briefs and any other documents, data, information or evidence submitted b\' any party to such proceeding except for material such as trade secrets normally not available through commercial publication for which such party has made a claim of confidentiality and requested exclusion from the record which the Commissioner deems confidential. All factual information contained in any report of examination or investigation submitted to or obtained by the Commissioner's staff shall also be made a part of the record unless deemed confidential bv the Commissioner. (1983 (Reg. Sess.. 1984). c. 1 113. s. 1.) §53-232. Fees. Each bank holding company subject to this act shall pay the following fees: (1) An initial registration fee of $1,000. (2) An annual registration fee of $750.00. (3) A fee of $50.00 for the issuance of any certified copies of documents plus $1.00 per page o\er a number of pages specified by (he Commissioner. (1983 (Reg. Sess.. 1984). c. ARTICLE 3A. North Carolina Regional Reciprocal Savings and Loan Acquisition Act. §54B-48.L Title. This Article shall be known and may be cited as the North Carolina Regional Reciprocal Savings and Loan Acquisition Act. (1983 (Reg. Sess.. 1984). c. 1087. s. I.) §54B-48.2. Definitions. •37- Notwiihstanding the provisions ol G.S. 54B-4. as used in this Aniclc. unless the context requires otherwise: (1) "Acquire", as applied to an association or a savings and loan holding company, means any of the following actions or transactions: a. The merger or consolidation of an association with another association or savings and loan holding company or a savings and loan holding company with another savings and loan holding company. b. The acquisition of the direct or indirect ownership or control of voting shares of an association or savings and loan holding company if. after the acquisitioii. the acquiring association or savings and loan holding company will directly or indirectly own or control more than fi\e percent (5^() of any class of voting shares of the acquired association or savings and loan holding compan\ . c. The direct or indirect acquisition of all or substantially all of the assets of an association or savings and loan holding company. d. The taking of any other action that would result in the direct or indirect control of an association or savings and loan holding compan\ . (2) "Administrator" means the Administratt^r of the Savings and I^an Division. ^^) "Association" means a mutual or capital stock savings and loan association, building and loan association or savings bank chartered under the laws of any one of the states or bv the Federal Home Loan Bank Board, pursuant to the "Home Owners" Loan Act of 1933". 12 U.S. C. Section 1464. as amended. (4) "Branch office" means any office at which an association accepts deposits. The term branch office does not include: a. Unmanned automatic teller machines, point-of-sale terminals, or similar unmanned electronic banking facilities at which deposits may be accepted: b. Offices located outside the United States: and c. Loan production offices, representative offices, service corporation offices, or other offices at which deposits are not accepted. (5) "Companv" means that which is set fonh in the Federal Savings and Loan Holding Company Act. 12 U.S.C. Section I 730a(a)( 1 )(C). as amended. (f>) "Control" means that which is set forth in the Federal Savings and Loan Holding Company Act. 12 U.S.C. Section I730a(a)(2). as amended. (7) "Deposits" means all demand, time, and savings deposits, without regard to the location of the depositor: Provided, however, that "deposits" shall not include any deposits by associations. For purposes of this Article, determination of deposits shall be made with reference to regulatory reports of condition or similar reports made b} or to State and federal regulator} authorities. (8) "Federal association" means an association chartered by the Federal Home Loan Bank Board pursuant to the "Home Owners" Loan Act of 1933". 12 U.S.C. Section 1464. as amended. (9) "North Carolina association" means an association organized under the laws of the State of North Carolina or under the laws of the United States and that: a. Has its principal place of business in the State of North Carolina; b. Which if controlled by an organization, the organization is either a North Carolina association. Southern Region association. North Carolina savings and loan holding company, or a Southern Region savings and loan holding companv : and c. More than eighty percent (809f ) of its total deposits, other than deposits located in branch offices acquired pursuant to Section 123 of the Garn-St Germain Depositor)' -38- Institutions Act of 1982 (12 U.S.C. 1730a(m)) or comparahle state law. are in its branch offices located in one or more of the Southern Region states. (10) "North Carolina Savings and Loan Holding Company" means a savings and loan holding company that: a. Has its principal place of business in the State of North Carolina: b. Has total deposits of its Southern Region association subsidiaries and North Carolina association subsidiaries that exceed eighty percent (809f ) of the total deposits of all association subsidiaries of the savings and loan holding company other than those association subsidiaries held pursuant to Section 123 of the Gam-St Gennain Depository Institutions Act of 1982 (12 U.S.C. I730a(m)) or comparable state law. (11) "Principal place of business" of an association means (he state in which the aggregate deposits of the association are the largest. For the purposes of this Article. the principal place of business of a savings and loan holding company is the state where the aggregate deposits of the association subsidiaries of the holding company are the largest. (12) "Savings and loan holding company" means any company which directly or indirectly controls an association or controls any other company which is a savings and loan holding company. (13) "Service Corporation" means any corporation, the majority of the capital stock of which is owned by one or more associations and which engages, directly or indirectly, in any activities which ma\ be engaged in by a service corporation in which an association may invest under the laws of one of the states or under the laws of the United States. (14) "Southern Region association" means an association other than a North Carolina association organized under the laws oi one of the Southern Region states or under the laws of the United States and that: a. Has its principal place of business only in a Southern Region state other than North Carolina: b. Which if controlled b\ an organization, the organization is either a Southern Region association or a Southern Region savings and loan holding company: and c. More than eighty percent (80*^) of its total deposits, other than deposits located in branch offices acquired pursuant to Section 123 of the Gam-St Germain Depository Institutions Act of 1982 (12 U.S.C. I730a(m)) or comparable slate law. are in its branch offices located in one or more of the Southern Region states. (15) "Southern Region savings and loan holding company" means a savings and loan holding compan\ that: a. Has its principal place of business in a Southern Region state other than the State of North Carolina: b. Has total deposits of its Southern Region association subsidiaries and North Carolina association subsidiaries that exceed eighty percent (80%) of the total deposits of all association subsidiaries of the savings and loan holding company other than those association subsidiaries held pursuant to Section 123 of the Gam-St Gennain Depository Institutions Act of 1982 (12 U.S.C. I730a(m)) or comparable state law. (16) "Southem Region states" means the states of Alabama. Arkansas. Florida. Georgia. Kentucky. Louisiana. Maryland. Mississippi. North Carolina. South Carolina. Tennessee. Virginia. West Virginia, and the District of Columbia. (17) "State" means any state of the United States and the District of Columbia. (18) "State association" means an association organized under the laws of one of the states. •39- (19) "Subsidian " means that which is set forth in the Federal Savings and Lxian Holding Company Act. 12 U.S.C. Section 1 730a(a)( I )(H). as amended. (1983 (Reg. Sess.. 1984). c. 1087. s. I.) §54B-48.3. Acquisitions by Southern Region savings and loan holding companies and Southern Region associations. (a) A Southern Region savings and loan holding compan\ or a Southern Region association that does not have a North Carolina association subsidiary (other than a North Carolina association subsidiary that was acquired either pursuant to Section 123 of the Garn-St Germain Depository Institutions Act of 1982 (12 U.S.C. I730a(m)). or comparable provisions in state law. or in the regular course of securing or collecting a debt previously contracted in good faith) may acquire a North Carolina savings and loan holding company or a North Carolina association with the approval of the Administrator. The Southern Region savings and loan holding company or Southern Region association shall submit to the Administrator an application for approval of such acquisition, which application shall be approved only if: ( 1 ) The Administrator determines that the laws of the state in which the Southern Region savings and loan holding company or Southern Region association making the acquisition has its principal place of business permit North Carolina savings and loan holding companies and North Carolina associations to acquire associations and savings and loan holding companies in that state: (2) The Administrator determines that the laws of the slate in which the Southern Region savings and loan holding compan\ or Southern Region association making the acquisition has its principal place of business permit such Southern Region savings and loan holding company or Southern Region association to be acquired by the North Carolina savings and loan holding company or North Carolina association sought to be acquired: (3) The Administrator determines either that the North Carolina association sought to be acquired has been in existence and continuous!) operating for more than fne years or that all of the association subsidiaries of the North Carolina savings and loan holding company sought to be acquired have been in existence and continuously operating for more than five years: Provided, that the Administrator may approve the acquisition by a Southern Region savings and loan holding company or Southern Region association of all or substantially all of the shares of an association organized solely for the purpose of facilitating the acquisition of an association that has been in existence and continuously operating as an association for more than five years: and (4) The Administrator makes the acquisition subject to any conditions, restrictions, requirements or other limitations that would apply to the acquisition by a North Carolina savings and loan holding company or North Carolina association of an association or savings and loan holding company in the state where the Southern Region savings and loan holding company or Southern Region association making the acquisition has its principal place of business hut that would not apply to the acquisition of an association or savings and loan holding company in such state by an association or a savings and loan holding company all the association subsidiaries of which are located in that state; (5) With respect to acquisitions involving the merger or consolidation of two associations resulting in a Southern Region association, the application includes a business plan extending for an initial period of at least three years from the date of the acquisition which shall be renewed thereafter for as long as may be required by the Administrator. The association may not deviate without the prior written approval of ■40- the Administrator from the business plan which shall address such matters as the Administrator may deem appropriate for the protection of the depositors and members of the acquired North Carolina association and the general public. The business plan shall address, without limitation: a. Insurance of depositors' accounts. b. Limitation of services and activities to those permitted under this Chapter to North Carolina associations. c. Conversion of corporate form or other fundamental changes. d. Closing, selling or divesting any or all North Carolina branches. e. Protection of the voting rights of North Carolina members. (b) A Southern Region savings and loan holding company or Southern Region association that has a North Carolina association subsidiary (other than a North Carolina association subsidiary that was acquired either pursuant to Section 123 of the Garn-St Germain Depository Institutions Act of 1982 (12 U.S.C. I730a(m)). or comparable provisions in North Carolina law. or in the regular course of securing or collecting a debt previously contracted in good faith) may acquire any North Carolina association or North Carolina savings and loan holding company with the approval of the Administrator. The Southern Region savings and loan holding company shall submit to the Administrator an application lor approval of such acquisition, which application shall be approved only if: (1) The Administrator deteimines either thai the North Carolina association sought to be acquired has been in existence and continuously operating for more than five years or that all of the association subsidiaries of the North Carolina savings and loan holding company sought to be acquired have been in existence and continuously operating for more than five years: Provided, that the Administrator may approve the acquisition by a Southern Region savings and loan holding company or Southern Region association of all or substantially all of the shares of an association organized solely for the purpose of facilitating the acquisition of an association that has been in existence and continuously operating as an association for more than five years: and (2) The Administrator makes the acquisition subject to any conditions, restrictions, requirements or other limitations that would apply to the acquisition by the North Carolina savings and loan holding companv or North Carolina association of an association or savings and loan holding Company in the State where the Southern Region savings and loan holding companv or Southern Region association making the acquisition has its principal place of business hut that would not apply to the acquisition of an association or savings and loan holding company in such state by a savings and loan holding company all the association subsidiaries of which are located in that state. (3) With respect to acquisitions involving the merger or consolidation of two associations resulting in a Southern Region association, the application includes a business plan extending for an initial period of at least three years from the date of the acquisition which shall be renewed thereafter for as long as may be required by the Administrator. The association may not deviate without the prior written approval of the Administrator from the business plan which shall address such matters as the Administrator may deem appropriate for the protection of the depositors and members of the acquired North Carolina association and the general public. The business plan shall address, without limitation: a. Insurance of depositors' accounts. .41. h. Limitation of senices and acti\ities to those peirnitted under this Chapter t(^ North CaroMna associations. c. Conversion of corporate form or other fundamental changes. d. Closing, selling or di\esting any or all North Carolina branches. e. Protection of the voting rights of North Carolina members. (c) The Adniinisiiaioi shall rule on an_\ application subniiiieJ under this section not later than 90 days following the date of submission of a complete application. If the Administrator fails to rule on the application within the requisite 90-da\ period, the failure to rule shall be deemed a final decision of the Administrator approving the application. {\9S? (Reg. Sess.. 1984). c. 1087. s. I.) §548-48.4. Exceptions. A North Carolina sa\ings and loan holding company, a Noilh Carolina association, a Southern Region sa\ings and loan holding company, or a Southern Region association may acquire or control, and shall not cea<;e to be a North Carolina savings and loan holding company, a North Carolina association, a Southern Region savings and loan holding company, or a Southern Region association, as the case may be. b\ virtue of its acquisition or control of: ( 1 ) An association having branch offices in a state not within the region, if such association has been acquired pursuant to the provisions of Section \2^ of the Gam-St Germain Depository Institutions Act o\ 1982 (12 U.S.C. I730a(m)). or comparable provisions of state law : (2) An association which is not a Southern Region association if such association has been acquired in the regular course of securing or collecting a debt previouslv contracted in good faith, and if the association or savings and loan holding company divests the securities or assets acquired within two years of the date of acquisition. A North Carolina association, a North Carolina savings and loan holding company, or a Southern Region association mav retain these interests for up to three additional periods of one year if the Administrator determines that the required divestiture would create undue financial difficulties for that association or savings and loan holding companv. (198.^ (Ree. Sess.. 1984). c. 1087. s. 1.) §548-48.5: Prohibitions. (a) Except as mav be expressl} permitted by federal law. no savings and loan holding company that is not either a North Carolina savings and loan holding company or a Southern Region savings and loan holding companv shall acquire a North Carolina savings and loan holding companv or a North Carolina association. (b) Except as required bv lederal law. a North Carolina savings and loan holding company or a Southern Region savings and loan holding company that ceases to be a North Carolina savings and loan holding company or a Southern Region savings and loan holding companv shall as soon as practicable and. in all events, within one year after such event divest itself of control of all North Carolina savings and loan holding companies and all North Carolina associations: Provided, however, that such divestiture shall not be required if the North Carclina savings and loan holding company or the Southern Region savings and loan holding company ceases to be a North Carolina savings and loan holding company or a Southern Region savings and loan holding company, as the case may be. because of an increase in the deposits held by association subsidiaries not located within the region and if such increase is not the result of the acquisition of an association or savings and loan holding company. Provided further that nothing in this Article shall be constmed to permit interstate branching by associations nor to require the divestiture of a North Carolina association or a North ■42 • Carolina savings and loan holding company by a savings and loan holding company which acquired its subsidiary North Carolina association or North Carolina savings and loan holding compan\ prior to the effective dale of this Article. Nor shall anything in this Article be construed to prohibit any sa\ings and loan holding company which has acquired a North Carolina association or North Carolina savings and loan holding compan\ prior to the effective date of this Article troni acquiring additional Nonh Carolina associations or North Carolina savings and loan holding companies. Nor shall an\thing in this .Article be construed to limit the authorit\ of the Administrator pursuant to'G.S. 54B-44. (1983 (Reg. Sess.. 1984). c. 1087. s. \'.) §54B-48.6. Applicable laws, rules and regulations. (a) Any North Carolina association that is controlled by a savings and loan holding company that is not a North Carolina savings and loan holding compan\ shall be subject to all laws of this State and all rules and regulations under such laws that are applicable to North Carolina associations that are controlled b\ North Carolina savings and loan holding companies. (b) The Administrator may promulgate rules, including the imposition of a reasonable application and administration fee. to implement and effectuate the provisions of this Article. (1983 (Reg. Sess.. 1984). c. 1087. s. I.) §548-48.7. Appeal of Administrator's decision. Notwithstanding an\ other provision of lau . an\ aggrieved parts in a proceeding under G.S. 54B-48.3 or G.S. 548-48.4(2) ma> . within 30 days after final decision of the Administrator and b\ written notice to the Administrator, appeal directly to the North Carolina Court of Appeals for Judicial re\ie\\ on the record. In the event of an appeal, the Administrator shall ceilifv the record to the Clerk of the Court of Appeals within 30 days after filing of the appeal. (1983 (Reg. Sess.. 1984). c. 1087. s. I.) §548-48.8. Periodic reports; interstate agreements. (a) The Administrator max from time to time require reports under oath in such scope and detail as he may reasonably determine of each Southern Region savings and loan holding company or Southern Region association subject to this Article for the purpose of assuring continuing compliance with the pro\isions of this Article. (h) The Administrator ma\ enter into cooperative agreements with other savings and loan regulatory authorities for the periodic examination of any Southern Region savings and loan holding compan\ or Southern Region association that has a North Carolina association subsidiary and may accept reports of examination and other records from such authorities in lieu of conducting its own examinations. The Administrator may enter into joint actions with other savings and loan regulator) authorities having concurrent jurisdiction over any Southern Region savings and loan holding company or Southern Region association that has a North Carolina association subsidiary or may lake such actions independent!) to earn, out his responsibilities under this Chapter and assure compliance with the provisions of this Article and the applicable laws of this Stale. (1983 (Reg. Sess.. 1984). c. 1087. s. 1.) §548-48.9. Enforcement. The Administrator shall have the power to enforce the provisions of this Article, including the divestiture requirement of G.S. 54B-48.5(b). through an action in any court of this State or an\ other state or in any court of the United States for the purpose of obtaining an appropriate remedy for violation of any provision of this Article, including such criminal penalties as are contemplated by G.S. 54B-66. (1983 (Reg. Sess.. 1984). c. 1087. s. I.) §§548-49 to 548-51. Reserved for future codification purposes. •'4.:>- r\ ' ij.> ■ ' j.^\ STATEMENT OF WILLIAM T. GRAHAM COMMISSIONEK OF BANKS MARCH 16, 1988 I have been asked to express my views on the effect that interstate banV.ing ha? had on the following topics: (a) statewide distribution of credit and its impact on various sectors of our state; (b) cost and availability of other financial services; (c) pricing of financial services; (d) employment; (e) level of competition between financial institutions in the State; (f) financial product deregulation on the insurance, real estate, securities, and export industries. Although no one can demonstrate a direct relationship between credit availability and general business development, some things are obvious. Of course, in any area where credit is restricted, be it geographical, industrial, or whatever, business does not thrive. However, once a certain level of credit availability is reached, it cannot be said with any reliability that a particular activity would have occurred had credit been available. Note that credit funds, not speculative investment, are being considered. Deposit taking institutions, i.e., banks, savings and loans, and credit unions, are regulated for safety and soundness. Thus, no matter whose other interests are being protected those of the depositors end up coming -A A first as well they should. In short, if funds are available to be lent, they will be lent if a good loan can be made. Competition, from whatever source, drives down tlie cost of all financial services. This assertion is considerably easier to prove in areas of service other than in the cost of money. For example, when competition forces it, a financial institution, such as a bank, will lower the cost of maintaining a checking account, will give free safety deposit boxes, and will raise the interest rate it pays on certificates of deposit. These items can be advertised in the hope of getting new customers and keeping old customers. It is more difficult, however, for the bank to advertise that it has the lowest loan rates in town. Thus, only the few fortunate borrowers who have the ability and the time to shop for a loan can take full advantage of the competition in loan rates. Bankers like long-term customer relationships. Because he can threaten to move his business elsewhere, the established borrower/customer is more likely to benefit from competition than the new borrower/customer who must shop for a loan. This circumstance works to the detriment of many small businesses, new businesses, and minority owned businesses. Lending is done along very traditional lines. If the borrower is new to credit, new to the business, possibly a marginal operator, and as all too frequently happens, unable to comprehend that the bank will simply not lend him money unless he can prove it will be paid back, then it does not matter if we have four banks in every block. The person is not going to get a loan. Needless to say, such a prospective borrower is in no position to shop for a loan. A large portion of small business development should be devoted to how to apply for credit. Tliis instruction should include an explanation of the very basics of what financial information will be required on paper before a lender will make a loan. Increased competition, be it from banks already in North Carolina or banks that will come into North Carolina, certainly will help in this regard. The service cost of loans means that most banks simply will not make small loans, and this practice will continue to be true no matter how intense the competition becomes. Thus, even though many of the new- bank applicants insist that one of their reasons for wanting to start a bank is that the big state-wide banks no longer make small loans, generally the new bank quickly finds that it cannot do so either and make a profit. The small borrower is thus forced into other credit sources, such as consumer finance companies. It should be noted, however, that all banks, in effect, continue to make small loans because of credit card availability and reserve account access items. So far, the direct effect of interstate banking on employment in North Carolina is difficult to determine. North Carolina banks have gone into other states, and as these banks become bigger, more persons are employed. However, the overwhelming majority of this employment probably is outside North Carolina. The indirect effect on employment brought about by interstate banking is that we have had a large number of new banks formed. One of the other primary reasons given is that, 'My bank has gotten too big and is no longer interested in my hometown. Many banking customers profess a desire to deal with a hometown bank, and even the super regionals do everything they can to preserve the hometown -A6 image. However, it is expected that as the big boys get bigger smaller banks will prosper and there will be more of them--thus, more employment. Because North Carolina has never had geographical restrictions on branch banking, the industry became stronger sooner and the competition keener in North Carolina than in many other areas. Again, this competition is more visible in almost every other area than the cost of credit. It is fair to say that many banks and savings and loans compete directly. For deposits, both institutions compete directly with money market accounts. It is also fair to say that even though competition is intense, the competition is probably more in the pricing of services rather than in the pricing of credit since the goal is establishment of a long-term relationship. Financial product deregulation is expected to have little effect on the business engaged in by North Carolina based banks. North Carolina state banks have had these powers all along, and while many exercise the right to engage in other businesses, many do not. The increased knowledge that other business authority is available will undoubtedly bring some state-chartered banks into other businesses but this is really minimal. Of the 16 national banks in North Carolina many of them already engage heavily in other businesses in one manner or another. Even if full authority is granted it is doubtful that these banks are likely to go out and engage on a large scale in other businesses. If the desire to do this was overwhelming the national banks could have long ago changed their charters to state-chartered banks and engaged in these businesses. One likely effect may well be that out-of-state banks will purchase North Carolina securities firms. In short, if drastic -47. changes come, they are more HV.ely to come from outside North Carolina in financial product deregulation having an effect on otlier North Carolina businesses. Inevitably nationwide interstate banking is coining. North Carolina banks are strong enough to resist this challenge and the Reciprocal Banking Act has made them even stronger. The time will undoubtedly come when North Carolina banks will be purchased by banks from other states (a small one is pending now). This, in no way, shape, or form will mean the end or even the decline of the banking industry in North Carolina. The increased competition will be good for banking in North Carolina. The only reason it has not already happened is the strength of North Carolina banks and probably the temporary setback of merger and acquisition activity brought on by October 19. It would be helpful from the competition standpoint and from the regulatory standpoint if the 5-year provision on the acquiring of a newly chartered bank by a non-North Carolina holding company were removed. This would be especially helpful when, as sometimes occurs, the original investors are unable or unwilling to supply the additional capital needed to make a new bank really profitable and yet no in-state institution is willing to buy in. The Reciprocal Backing Act has done an excellent job of protecting North Carolina banks long enough to allow them to be major players in the interstate banking market. It is time now to remove many of the restrictions on interstate banking. This removal will allow the public to benefit from the competition which clearly will be a result of out-of-state banks coming into North Carolina and from new banks forming -A8- because of the increased loss of hometown image. A bank will go anywhere it can get deposits and anywhere it can make loans. Unfortunately, these places are not always identical. Deposits may be heavy in a particular area and loan demand weak. The bank, as an intermediary, loans the depositors' money out whether it is in Charlotte, Atlanta, or Brazil. It is high time that the system started to work the other way. .1,0. STATE OF NORTH CAROLINA Office of Commissioner of Banks The experience of the Commissioner of Banks in administering the Interstate Banking Act and the North Carolina Bank Holding Company Act of 198A (NCBHCA). I. The Interstate Banking Act To date, no out-of-state bank holding company has acquired a North Carolina bank or bank holding company. The North Carolina Commissioner of Banks has not had any experience in the processing of an application for acquisition. In anticipation of future activity, the Commissioner of Banks has established a working relationship with each state and federal bank regulator in our region. A formal agreement has been signed with: the Bureau of Financial Institutions, Virginia; Comptroller of the Currency (Administrator of National Banks), Atlanta; Federal Reserve Bank, Richmond, and the Federal Deposit Insurance Corporation, Atlanta Regional Office. These agreements provide for the confidential exchange of information from examinations and, in the case of the State of Virginia, the exchange of and comments on applications for acquisition. The North Carolina Commissioner of Banks also has in place informal agreements for the sharing of information with: Federal Reserve Board, Washington, D. C; Federal Reserve Bank, Atlanta; Department of Banking and Finance, Georgia; Department of Financial Institutions, Louisiana; Division of banking, Florida; Commissioner of Banks, South Carolina; Department of Financial Institutions, Tennessee, and the Department of Financial Institutions, Alabama. With the exception of the Federal Reserve Board, a joint meeting has been held each year, since 1983 with the above regional bank regulators. At this meeting, the participants have planned the next year's Interstate Examination Program and have discussed any problems that they needed to resolve. While not currently active, the State regulators from Arkansas and Kentucky have participated in some meetings. The last meeting was held on December 3, 1987, and the 1988 examination schedule for all regional banks and bank holding companies was set for 1988. To date, all examination schedules have been met without any duplication of examination procedures. No regional bank or regional bank holding company has been subjected to a dual examination by Federal and State regulators. The cooperative -50- examination program along with the exchange of examination information is working well. II. Bank Holding Company Act of 1984 An informal agreement has been made by the North Carolina Commissioner of Banks with the Federal Reserve Bank, Richmond, that provides for the exchange of data and for the examination and supervision of bank holding companies that are subject to the North Carolina Bank Holding Company Act. The only area that has been a problem is the identification of holding companies that must register as required by Section 53-227. There is not any single record maintained by any regulatory agency (State or Federal) that lists all bank holding companies that are doing business in North Carolina. -51 THr CTTZCI OF THE COMMISSIONER OF EA-KKS (DECEMBER 31st, 1987) K0F:TH CAROLIKA BKCs (alphabetically by city) Fr:p Corporation, Asheborc, North Carolina BarclaysAir.erican Corporation, Charlotte, North Carolina ^^nlV\ °^ Corporation, Charlotte, North Carolina JJCr.B Corporation, Charlotte, North Carolina First Charter Ccrpcrati or. , Concord, North Carolina CCE Financial Corporation, Durhair,, North Carolina Bank or Granite Corporation, Granite Falls, North Carolina > U /..Financial Corporation, Granite Quarry, North Carolina Carolina Mountain Holdinr Company, Highlands, North Carolina LbE EancEhares, Inc., Lexington, North Carolina Southern National Corporation, Lumberton, North Carolina ^outhern Bancshares (N.C.), Inc., Mount Olive, North Carolina -irst Citizens Corporation, Raleiph, North Carolina F].r mancial Services Corporation, Reidsville, North Carolina Peoples Bancorporation, Rocky Mount, North Carolina -he Planters Corporation, Rocky Mount, North Carolina llTLTrtV^^' ^^"^"^i^l Corporation, SalisburJ^ North Carolina MiQ-South Bancshares (K.C.) Inc., Sanford, North Carolina First Bancorp, Troy, North Carolina Brl^lh ^^^^^-\^^^""hares Corporation, V^iteville, North Carolina Branch Corporation, Wilson, North Carolina First Wachovia Corporation, Vinston-Saler., North Carolina OUT OF STA.TE BHC'S (alphabetically by state.) AD-.Sou-h Bancorporation, EirEingham, Alabama Security Pacific Corporation, Los Angeles, California beneficial Corporation, Wilminpxon, Delaware Barnett B.anks of Florida, Inc., Jacksonville, Florida ^ne Citizens and Southern Corporation, Atlanta, Georgia - irst Illinois Corporation, Evanston, Illinois Citizens Fidelity Corporation, Louisville, Kentuckv llTn^T'' ^^=°^P' ^^l^i'^ore, Md. (now.. Signet Banking Group, Inc.) Bank o- Nev England, Boston, Massachuttes Norwest Corporation, Minneapolis, Minnesota MiQiantic Banks Inc., Edison, Nev Jersey Chemical Nev York Corporation, New York, New York Citicorp, New York, New York Manufacturers Hanover Corporation, New York, New York ci,^" -^^nancial Group, Inc., Providence, Rhode Island IZl.rV Rational Corporation, Columbia. South Carolina Sovran Financial Corporation, Norfolk, Virginia United Virginia Bankshares Incorporated, Richmond, Virginia Bank of Boston Corporation, Boston, Massachuttes (2-16-88) Amity Bancorp, Inc., Woodbridge, Connecticut (2-25-88) -S2 - NORTH CAROLINA LEGAL SER\TCES RESOURCE CENTER, INC. r>oriaiS M Scjioer; 1 2 SOUTH cLOU: " STREET POST OFFICE BOX 27343 R,iJi:iGH. NORTH CAROLINA 2761 1 (919) 821-OCM2 ^'.=na?,r,o.'Hou...gAnorney A!-.-:.:'r }.' Tlr.t^p^-. Direaor c! Tromms »Marao' Rolen Karen 16, 1988 Cc;.5.,-:.e-/,rr-r,e:. PcsmSiloermcr, Di-^ar Memixirs of the Comr.itLee an Interstate Bankinc: Deborch D Wcrrer. EcoriOrr.:? Developmer.J Sppciiziis' Tnank you for giving me the opportunity to address you today regarding the effects that we believe interstate banking has had on the lives of low income people in North Carolina. For tne past several years we m Legal Services have been retained by clients to deal with probler.s which ere related to the continuing deregulation of the banking industry and the spread of interstate banking. Over the years, low income people have found it increasinaly difficult to participate in the financial world, a conveniance which is taken for granted by the rest of us. Low income people cannot afford to have bank accounts; they are finding that banks will often not lend money in sma]l amounts, even when tney are credit wortnv; business loans in small amo'unts are increasingly difficult to obtain. Citizens of this state are experiencing problems which may be caused or worsened A' interstate bar.-;inc. Giver., the existence of these problems, oversight of the North Carolina banks enaaoed in interstate banking is an appropriate and timely task for tne C-eneral Assembly to anderteke. ProbleT.s Caused Sv" Interstate Senkino Affordability of Bank Accounts. It is becoming increasingly difficult for low income people to afford checKing or even savings accounts. Checking accounts often require minim-um balances or costly cnarces oer check wnich cut severely into the income availaole for life's necessities. Even miany savinos accounts require m.inim'urr. deposits. As Professor Nick Didow of the University of North Caroline Scncol of Business can better explain, the bigger the bank the higher the charges fcr these consumer services. As North Carolina banks have been crowinq by leaps and bounds over trie pest few yeerr, on the v.'hole basic banking services have become less afforaable. Availability of Hame Mortgage Loans. Tne large banks are closing their doors to credit worthy low income people wno seek ho.Tie rrortoaae loans to finance nome purchases one home improvements. Several of North Carolina's largest banks nave doubled or tripled m size because of interstate banking. The nrartcage lending activities cf t.'iese banks have generally crown at a similar rate. However, when the mortgage lending activity of one cf th'^ laroest super-regional banks was closely enelyzed, en olerTTiing trend appeared. Tne census tracts including significant nambers of people living below th- poverty line have received fewer and fewer it ^rtcage loans every year since this bank r>egan expanding across state lines. Availability of Financing for Small Businesses. Small businesses with little to offer as security except personal Guaranties and the sweet of the owners heve traditionally ned difficulty obtaining financing, for stert-up a.Td crowt-h. For nust that reason 'the Smiall Business Ad-inlstration' s various loan programs were created. ■Jnc^r tnese trccra-s, banks were offered incentives to make smiell business ioar.s. -5."- -2- However, evidence from the SBA indicates that since the onset of interstate banking in North Carolina, SBA guaranteed loans to s,Tiall businesses have declined precipitously. As tnis problem may oe particularly acute m rural areas, the Rural Econcmic Development Center is conducting a major study to determine the extent of the lack of available financing to small businesses. Oversight of Banks Involved in Interstate Banking "^s_ Appropriate^ Banks are different than other businesses. As most of a corrmunity's wealth is deposited in or flows through a local bank, the institution has tremendous control over the affairs of that cormunity. The credit and deposit services of a bank are not luxuries but necessities to businesses and citizens. Tnrough deposit insurance, access to the Federal Reserve's discount winoDW, limitations on competition, and other measures, banks receive from government far more support and protection than do other types of enterprises. Government also recocnizes the special obligations of banks. From the chartermc process that was established m tne early days of the republic to the ComrrLunitv Reinvestment Act in 1977, Congress has consistently affirmed banks' responsibility tc meet the convenience and needs of their conmunities. Regional interstate banking - a form of goverruTirtnt protection that requires no explicit public benefits in return - represpjits a real challenge to the bankiric industry's ability to rrieet the different needs of the individual communities served by the banks. Originally banks served single corrmunities. The needs of the conmunity ther Qeter~.ined the s'=:rvices the Psnk offers-::. However, as banks crew, the definitions of a community's needs becan^e vaguer, and were delineated more by region, thanlby state. " The problem is that before interstate banking, the large banks in this state at- least looked at the broad needs of North Carolina's communities. Even with stacewid-^ banking, local branches were lim.itec in their ability to b-? responsive to those needs as bank policies were established on a statewide oasis. Kith tne advent of interstatf^ banking, our large banks view their service areas as including several states, end thf problems of local resoonsiveness is compoonded. Th^ abilities of interstate •:>5nks tc meet the needs of small, rural and less affluent portions of North Carolina becomfi more questionable as Nortn Carolina's becomt-^ larger. Only the i;orth Carolina legislature can compel Panr-.s taking depocits from North Carolina citizens to respond to the financial needs of those citizens. There are several remedies tnaz tnis Commi;:tee can consider to address the problems caused or made worse by interstate banking. Tnese rem.'i'dies would neither disrupt interstate banking nor adversely effect the safety and soundness of the banks. Attached to this letter is a list of some methods the Comr.ittee can consider to deal with the issues raised by the changing financial climate created by interstate banking. There are several p-'cple here today who have studied many of the specific q'uestions whicn this Com.mittee has been asked to address.. ' Tom, Schlesinger of the Southern Finance Project has done extensive analysis of the banking conmunity in North Carolina. Professor ICick Didow has conducted surveys of banks to determine the cost of basic banking services. Rick Cariyle of the Rural Econoriic Development Center is in the midst of a study on need for small business financing m rural areas. Again, I thank you for the opportunity to sp>eak with you today. Please do not lesitate to contact me fcr more information on the effects of interstate banking on .:ne lives of low income oeoole m Kortn Carclir^. ■5A- THE FOLLCyiN" REf-'J:DIES WOULD GO. F_AR T^^.'ARDS FIXING THE PROBLEMS '^l^-l. J2iL STUDY CO.'-'l'-'ISSION KAY UNC0\11R 1) Disclosure requirements. Tnere ere a n'omber of notable gaps that exist reoarding the available data on small business lending, coirmercial lending, local deposit information and the community reinvestment commitments of banks. Additional data in these areas is a necessity to fully df^termining the extent of the problems that have caused the changing regulatory structure over bar>.£. Disclosure requirements would allow the Legislature and the public to find out A) tne true cost of services provided by banks; B) the actual interest income on deposit accounts and the potential costs of consumer accounts; and C) the distribution of mortgage, consumer and commercial and agricultural credit by geographic area and borrower t^'pe. Significant disclosure ought to affect the voluntary actions of better-informed Depositors, investors and borrowers. Tnose actions, in turn, might have a salutary, self-administering effect on North Carolina's financial system. The idea of market discipline works exactly the same way for credit distribution as it dc^s for safety and soundness considerations. Let's say you're a depositor in County A, which has two commercial banks and no other depositories. It's disclosed that Bank A make.; 70 percent of its commercial and farm loans outside the county and two-thirds of that 70% goes outside iCortn Cazclir^. Barn: E meanwh-ile, makes 25 percent of its cormercial and agricultural loans outside the county and they're ell in North Caroline. If you're bankinc at A and the disclosure convinces you that A isn't pulling its weight in t.he local economy, you're free to shift your savings to B. No bureaucracy tells you where to b3nk or tells the institutions where to lend. 2) More precise legislative definition of the "convenience and needs" larxguege in North Carolina banking law and broad application cf those convanience and needs requirements. North Carolina statutes are murky on the ascertaining of "convenience and needs." And although several otner southeastern states recuire that out-of-state banks meet a conver.ience and neecs test wnen mercmg witri or acquiring an m-state ban,-;, no sucn requirement exists m !torth Carolina. .A more precise North Caroline convenience and needs test ought to include most of the twelve factors that structure Community Reinvestmient Act examinations. It ougnt, to speak tc the problem.s presented by excessive insider lendirc. And it ought to be applicable to national banks (including out-of-state banks riemng with ani accuirinc North Carolina t>=nks) as well as other financial service enterprises that take deposits 0£ make commercial loans. Prescribing a more precise test and widening its applicability would 'require amending the state law. 3) Incentives and disincentives for institutions receiviryg deposits from and managing investments for public bodies. Tnere seem to t>e two ways to oo aoout t.'iis. One involves followmc the kind of "linked deposit" programs pioneered m other states. Tnese aporoaches attempt to provide needed liquidity to com-.unity banKs, to stimulate disclosure of lending activities end/or to target loe.ns, sometimes on favorable terms, to st^cified sectors of tne economy (like small businesses). ■ _ -55- A some'wr.at diff<^rent approach wo'jld use depositories' disclosures to measure their relative contribution — weighted by bank size and other variables — to local and state economic health and financial soandness. Public entities would then apportion deposits and investments tesed on thos*^ I^ftasuremeJ^ts to the degree allowed by prudent cash management principles. In other words, e bank that is found to b^ lending half the deposits it coll<^rts in North Carolina to apparel manufacturers in Sri Lanka would receive fewer public deposits than a conparably-sized bank using 85 percent of its North Carolina Deposits to fund productive, ^ob-oeneratmg activities in North Carolina. North Carolina's longtime branchmq tradition and numierous statewide financial franchises make such a system more feasible here than in many other states. 4) Expanded and clarified regulatory duties and powers for the banking cormiissioner and other state officials. Tne Banking Ccmnissioner is the logical official to: assist banks in disclosing relevant regulatory assessments and actions; oversee the regular disclosure of deposit account and loan information; make convenience and needs determiinations; establish or adjust ceiling prices on bank products; and monitor and rank the p)erfonnance of depositories eligible to receive deposits from and manage investments for public bodies m North Carolina (the Treasurer's office and statutory duties might came into play here too) . 5) State funded secondary market for community reinvestment loans. At a relatively low cost, the state could fund a public corporation whose function would be to buy community reinvestment loans from North Carolina banks. This would encouraoe banks to mcake, for example, small loans to stioII businesses whicn previously were not "cost justified." ■5 NO MINIMUM. CHECKING S3. 00 S-ZS/check i-iKii >. ^ , • u „„ over K UNION (a) no service charge ^^^^^^ exemptior. (b^i truncated account ATM free ATM free (a) S500 minin-um checking balance, cr (b) SI, 000 average checking balance \, -K-K^sT CHECKING (NOW) TTTo S . 25 /check (aj S65C n-.inin-u.'T. cnecKing ^'■' - balance, cr (b) Si.SOC average checking balance {I--) "CUSTOMIZE: BAiTKING" PROGRAMS "bundled" accounts for high balance customers and ever 55 's with high balances (a) includes "ORGA^NIZED BA-NkIN- "simple and efficient banking at the lowest possible cost" (i) S^OO ninim-or. checking or savings balance, or (ii) £750 average checking balance S5.00 S.25/check ^..-vr- c7 OS S.25/check NCNB (1) P-IC-Ui-^-?- CHECKING S..-^ - _ „^, (a) S500 r.ininu.- savings " ' - balance, or (b) S600 rr.iniTT-.'u-T. checking balance, or (c) SI, 000 average checking balance •75- NCKB (2) BONTS CHEC};iNG (NOW) ^$i.00 S.ZS/check (cont) {c^} $700 minimum checking S.ZS/ATK balance, or (b) 51,200 minimum savings balance (3) MONEY MMLKET CHECKING $5.00 $.:5/checK (a) $7,500 minimum checking $.25/ATM balance, or (b) $10,000 average checking balance (,4) DELUXE BANKING $10.00 $.:5/checK (aj $2,500 average savings $.25/ATM balance, or (b) $10,000 in CD (c) many other benefits also included WACHOVIA (i) REGUU'J^ CHECKING $3.00 $.25/check (a) $500 minimum checking $.25/ATM balance, or (b) SAOO minim-jj?. savings balance, or (c) $1,250 average checking D a J. a n c e . (2) ECONO>r;' CHECKING $3.00 $.50/ check c: (a) no service charge ATM ever 1'. exemption per month (b) truncated account (3 J INTEREST/ CHECKING $3.00 $.25/check (a) $600 mir.i:r,'jr. checking $.25/ATM balance, or (b) $2,000 average checking balance {^) y.OKn MARiCET CHICKING $3.00 $.25/cneck (a) no service charge $.25/ATM exemption 15; WACHOVIA CROWN ACCOUNT $10.00 $.25/ check (a) high balance "bundled" $.25/ATM account vith many extra benefits (b) requires $2,500 savings balance, cr (c) $10,000 in investment/CD accounts -76- CCB (1) BASIC CHECKING S3. 00 S.:5/check (a) S250 r.ir.inun ir. Preni'oin ATM free Savings, or (b) S'^OO r.ir.ir.iLT, checking balance, or (c) $1,250 average checking balance [I INTF'"'" CHF"}'T^:- 57.00 S.ZS/checK (a) $1,000 r.iniinun checking over 10 balance, or checks i,b) S2,500 average checking ATM free balance FIRST (1) REGULAR CHECKING S3._5 S.25/check CITIZENS (a) S500 r.inir.-o.-?. savings S.20/ATM BANTC balance, or (b) S50C rr.ininu.Ti checking balance, or (c) SI, 000 average checking balance (2) CHECK WITH INTEREST (NOW) S3. 25 S.25/check (a; Siii -ininu::: checking S.2C/AT!< balance, or (b) S2,000 average checking balance (3) INSTT.ET MONET MAJll'.ET CHECKING S3. 25 S. 25 /check NOV ACCOWT $.20/ ATM (a) no service charge exerr.pt ion lb) SI, 000 r.inim'u.T. balance (-.; PRLMIEJ. ACCCl'NI S12.C0 S .25/chect-. (a) includes r.any extra benefits S. 20./ ATM (b) requires S2,500 nminu-T. savings balance, or (c) SIC, 000 r.inii?,'u.T-. total deposit and investnent accounts, cr (d) hone ecuitv loan •77- THE VILLAGE Bank (1) REGULAE CHECKING ( £ ) S300 ninir.iin savings balance, or (b) S300 mininuin checking balance, cr (c) $1,000 average checking balance $3.0C $ . 25/ check ATM free (2) NOW CHECKING (a) $500 minirrium savings balance, or (b) $1,000 r.ir.irr.um checking balance, or (c) S2,000 average checking balance $5.00 $ . 25/ checK ATM free (3/ UNIVERSAL CHECKING (a) $600 r.inimuin checking balance $5.00 $ . 25/ check ATM free (4) INTESTMENT BANKING PACKAGE (a) high balance, "bundled" account with many extra benef : ts UCB (1) REGULA.R CHECKING (a) $500 iLininim checking balance (b) $1,000 average checking balance (c) $500 r.inimUiT. savings balance $4.00 $ . 25 /check ATM free (2) GOLDEN AGE (55") CHECKING no charge (a) includes a few additional benefits (b) no mini.Tiun balance requirements no cnaree (3) CHECK ST/JT (a) no service charge exemption $/..00 $ . 25/check over 20 checks ATM free •78- UCE (•:.:) L'CE-l CHECKING FL/A I S6.00 S.20/check (cont) over 30 checks ATM free (5) truncated account version S5.00 S.2C/check over 30 checks ATM free (6) UCB-1 CHECKING PLAN II S7.00 $.20/check (a) includes SIO.OOO accidental over 30 death insurance checKS ATM frpe (7) truncated account version S6.00 $.20/check over 30 checks ATM free (£) UCE-1 CHECKING PLAN III S6.00 S. 20/ check (a) includes S2C,000 accidental over 30 death insurance checks ATM free (9; truncated acccur.t version S7.CG S.2C/check over 30 checks ATM free (10) UCE NOW CHECKING Si. 00 S. 25 /check (a) S900 r.inir.-u.-. checking ATM free balance (b) SI, 900 average cneckinc balance (c) S900 miniinUiT. savings balance (11 J UCE PASSPORT £A_NTING S15.00 S.25/check (a) £5,000 rnir-rD'UTD checking ATM free balance [h) S5,000 r.ir.i-u.-:! savings or CD balance (c) includes many other benefits Source: Respective bank brochures and field visits March, 198£, ■79- DEMOGRAPHIC PROFILE OF NORTH CAROLINA HOUSEHOLDS BY ANNUAL INCOME CATEGORIES TOTAL POPULATION TOTAL HOUSEHOLDS AVERAGE HOUSEHOLD SIZE 19P0 CENSUS 5,881.7l6 2,0^3,291 2.8 6,370,82A 2,293,81A AKNTiAL HOUSEHOLD INCOME 1980 CENSUS NUMBER PERCENT 1987 ESTIMATE S 0 - S 7,i99 499,951 24.4% 17.5% $ 7,500 - S 9.999 192,939 9.4% 6.5% SIO.OOO - SU,999 364,746 17.8% 13.0% S15,000 - S2^,999 564,896 27.6% 22.7% S25,000 - $34,999 258,361 12.6% 18.5% 535,000 - S-45,999 110.623 D . 4,„ 12.9% SSO.OOO - $74,999 36,194 1.8% 6.1% $75,000 + 18,004 .9% 2.8% Source: 19SC Census and Dcnnellev DenocraDhics • RO- 1Q86 ANNUAL FEE INCOME FROM DEPOSIT ACCOUNTS FOR SELECTED NORTH CAROLINA BANKS 1986 annual income from service charges on B-am: E'F posit accoi^'TS FIRST L^'ION S 93, 989, 000 NCN5 82,252,000 WACHOVIA 82,887,000 UCB 12,19-^,000 CC5 9,233,578 PEOPLES 6,533,000 PLANTERS ^,879.521 Scarce: Selected 1966 Annual Eeoorts •81- First Union National Bank of North Carolina Firs: Union Piaza March \. 19SS Dear Customer: 0\'er the pas; luree years. Fr^'. Vruor, has beer, expanding bariiong operations ir, North CarolLna. South Carohr.a, Flonda. Georgia and Terjiessee. The results of this remarkable growth ha\-e included increased convemence. as well as the abiht>- to provide you \Mth expanded bankLng ser\'ices that are only ofi'ered b\ a select number o:' major banks. .As pan of this ongoing expansion. First Union wii! be ceniraliring credit card and overdraft protection dnst; Cash Reser\'tri acti\'it;es a: Firs; L'rjon National Ba.nk of Georgia beginnLng on June 1. 19SS, This centraiiia; will result in all MasterCard. \'isa. FL-;tChoice and Instant Cash Resen'e accounts being trar.sferred to Fir Umon National BanJ-: of Georr.a. This process will be done automatically and will require no actic on your pan. Frcm.iur.e 1. 19S5. gOLig fo.'">'.7irc. me acmmist-'^tjon of aL the aoo\e accounts vaL be hanoj; by First Union National Eani< of Geo.''g'.a. This consolidation v,-ilj resdt in centranzmg the processing of crec r^-." znn n\'^^n^~^'' n'-r.'arr^nr- a-^rMi-,'- *^nw~^ ^jj Q'jr ban^tLn" subsiciaTT*^ m the wOutheast .^^= a \-aJued Frst Urjon customer, you w_ continue to receive a supenor level cf customer sercice both thjT'Ugnout thus transition peno: and u-. the ruture. I: you have any questions conce.'mlng the transfer of you accountis;. please contact a custcm^er sales representative at l-SOO-532-0364. We appi-eciate your busuiess arc look lorA-arc to continuing to meet your fmanciaj needs in the ruture. ^ Ln c e re hv' "^l/l.VuCJ^ \\zt Charm.an Fu"5t Uruon .National Ba.nJ-; of .\'or.h Caiour.a l.MPORT.-.VT NOTICE t.:ec'jve June '.. 19Si. Fl-s; L'niDr. .Ne'jcr.i. B:.-.-: cf.Va-.-. C2.T3u.-.a is c.-.i.'g'Jig ne applicauon oi pa^'TTie.-; provisions lor .^U5■le:J^.-; 'I'isB inc .-LT.^noice ir:o.r.u as lcijo«"s .Arpiicsiion o: .'^■.■nen'.s; V\e — ir. cnocse s: o-.' soit ascrei.or. .".• me'-noo o: appninj: vo'.:.- pavmenii inc crecu ;o you: accou -^2' f North Carolina Deparrmenr of Commerce anioCj, Mjrtiii. (icucrnor (."l.uidL I Fopi.. SiiTct.irv ?- July 198e Mr. Terrence D. Sullivan Director c:^ Research North Carolina General Assemtly Legislative Office Building Raleigh, North Carolina 27611 Dear V.r . Sullivan: I have enclo?e'^. the information ahout loan loss ratios which the Trterstate Bankine Cornittee requested in Anril. Sources for our research include Sheshunof'^ 19P~ and the Uni'^orm Bank Performance Reports (UPB?^ ^cr- December 19P1^ and 1987. This report does not include information for the last quarter of 1954 because it is nci readily available to us. We cannot locate a copy of Sheshurp-^f 198^ vhich vould have that information; however, the Comiiittee could order a copy of this edition for $75.00. Since our records were not on computer in 19^^, neither can we report on state-cha^^tered banks for that quarter without spending an inordinate amount c" time checking the call reports m.anually. The iggii UPBR cannot be used either because it does not distinguish national banks from state banks. If you have questions or need additional information a.bout this report, please contact Phyllis Stephens at 733-05'^3. 11 Sihcereiv, 'wiliiainT; Graham * Commissioner of Banks V/TG/pas Enclosure R E C E 1 1/ E D ,JIJL 23 1988 GENERAL RESEARCH DIVISION Ofticc ot C^ommis-ioner ot Banks • W illiam T. Ciraham. Commissioner ?0 North Saiisburx btr<.c; • F. C). Box 2*^5 12 • RakiL'h. Norrh Carohna 2 '0:6-05 1 2 • "1 clcphonc 9 1 '>'-'33-301o Ai' Kiiul ( )i'ip Tv r-.j T r- 1 ro c 6 i? 0 Z I 5 en 5 0 LA N .V .V M C I C — I N .N .05. North Carolina Department of Commerce James C Martm. eiox^rnor Claude L. Pope, SccrctarN March 2c, 1968 MEKCPAKDUM Director of Research, K. C. General Assembly FROM : Willie.- T. Grahai5,/v^ Ccmr.issiorer cf Banks RE : Ir.terstste Bar.kinc Study Commission Session (March 16, 1988) Employment I am sorry I vas net etle to be present at the meeting on Ka^-ch I6, 1988, as I could have very easily cleared up what appears to be a discrepancy' betveen Tot Fideout's testiraonv of an increase in bank emploT,T:ent from 30, COO to 3T,0C0 and my presentation that there does not appear to have teen any increase. Quoting from Hideout's vritten testimony, "EmDloATnent in our banking industry has grovr. strongly since the event of regional interstate banking. According to the final FPTC em.ployment figures for 108? , total emplc:/ment in North Carolina banking reached 37,289 compared with 30,62"^ at year-end 1Q°3. This represents a grovii.h of almost 22% over the four-year period." Quoting from my written testimony, "So far, the direct effect of interstate banking on employment in North Carolina is difficult to determine. North Carolina banks have gone into other states, and as these banks become bigger, more persons are employed. However, the overwhelming ma.lority of this employment probably is outside North Carolina. The indirect effect on emplo;,Tiient brought about by interstate banking is that we have had a large number of new banks formed." I have no doubt that employment in banking has increased during the I983-I987 period and I will accept Tom Rideout's figure as correct. However, please note that he does not in any way say that this employment is a result of interstate banking. The increase in employment simply occurred during the same period that we have had interstate banking. Otlicc of (.nmmissiotuT ot Bank^ • \\ illiam 1 . Ciraham. Commi'-Monfr 4?0 Norrh Sali^bur\ Streit • F. () Box 2^511 • Ralcitih. North Carolina 27626-05 1 2 • Ickphonc 91 y-'.'^.^Ol 6 \i; I i|i,j: ( )pi».riu:iii\ Anirir.aini. Aiiion Kin[)l()\i.r _ -"; i^. _ KEKC TO TZRPY SULLIVAK -2- March ?8 , I9B8 I vill villingly concede that interstate banking has created some increased emploATner.t in North Carolina. I refuse to believe that iust because V.'achovic. is ii. Gecrgii and NCKE is in South Carolina and Florida, for example, that NCTJP's and Wachovia 's employment in North Carolina has increased appreciably. T would want to hear specifically from them that it has first. Finally, if Ton Rideout did say that interstate banking had increased employment in North Carolina by some 7,000 I take solace in Professor Eisenbeis' statement wherein he urged the Committee, "to be very skeptical of any work claiming to identifv the effects of chanees in North Carolina law because a host of other :^inancial market changes occurred at about that time." These market changes also had an effect on employment. Obviously, employment in banks in general has increased as the figures I Kot together very recently show that the 13 completely new state-chartered banks which opened between January 1, 19&5, and October 15, iP?''', had an employment of 2l8. This is brand new emplo^/ment . Also, each nev branch, of which our state banks had 5^^ in I98T alone, creates new employment. LEGISLATIVE SERVICES OFFICE 2129 STATE LEGISLATIVE BUILDING RALEIGH 2761 1 DRGE R HALL JR iiSLATivE Administrative Ofpicer EPHONE 191917337044 GERRY F COHEN Director LEGISLATIVE drafting Division Telephone (919)733-6660 THOMAS L COVINGTON Director Fiscal Research Division Telephone (9 i 9> 733-491 o M GLENN NEAKIRK Director LEGISLATIVE Automated Systems Division Telephone (919)733-6834 TERRENCE D SULLIVAN Director Research Division Telephone 19191733 2578 MARGARET WEBB LEGISLATIVE Information Officer Telephone I9i9i733 4200 May 4, 1988 MEMORANDUM TO: Terrence D. Sullivan, Director of Research FROM: Sara Kamprath, Research Assistant RE: The number of bank employees in North Carolina Ms. Marie Blackwell of the Employment Security Commission provided the following figures for the number of bank employees in North Carolina. 1983 1984 1985 1986 1987 31,515 30,751 31,604 32,853 34,525 (1st quarter) From 1985 to 1987, there was a 9% increase in the number of banking employees. The Employment Security Commission figures are for State Banks, members of the Federal Reserve; State Banks, not members of the Federal Reserve system and insured by FDIC; State Banks, not members of the Federal Reserve System and not insured by the FDIC; and National Banks. I checked with Phyllis Stevens, special assistant to the Commissioner of Banks, about the FDIC figures for the number of bank employees. She gave me the following figures: 1983 30,627 1984 32,369 1985 33,611 1986 35,410 1987 37,289 These figures show an 11% increase in the number of bank employees from 1985 to 1987. For these figures, the term "bank" is defined in G.S. 53-1 as and loan associations, savings banks, credit unions, receiving, soliciting or equivalent on deposit as a business "any corporation, other than savings industrial banks, and accepting money or its Ms. Stevens could give me MEMORANDUM PAGE 2 April 20, 1988 no reason for the discrepancy between the two sets of figures. Both figures should be the same as they are counting the employees of the same institutions. For your further information, the total number of North Carolinians employed during each of those years is shown below: 1983 1984 1985 1986 1987 2,674,000 2,828,000 2,953,000 3,024,000 3,130,000 From 1985 to 1987, there was a 6% increase in the North Carolina workforce according to these Employment Security stati sties . ■89- w rt o 1 •pH ^ s 1 1 ^ I •iH ^J W ^^^ ti H— I Si n tuD u ' 1^ 4J 1 • fH OT ' M •d 1 ti d C0 a ^4 ' (d m d O : 3 ^H ^. 0 u ^\ \ \\\>A \ o o o in o o o fVI o d o d (d oa 0) 0 s 52 n n 73 d o ct 2 •9 0- \\ , / -' • ■ / / / / /A Si u U o / ■ '''9- z^ \ \ \ w-^-^-^ -T~r-7~^ ' / / / y /' /^ \\ \> ^,\v.Nr\x-\ \\ \ \^v \ \\ ^, \ ^ \ ^ x \ "\ \ N- 1 V ///////// /v ^^-.\-^:\ x\ x\\\\ . -^ n iA m u (0 *i CO •o d (d n iA S n ! Vu^^_y:^^u / / / / /^ :^^ \ O) / / / / / / / / / /' y / i \ \ \ \ \ \ V .v^ /■ -^ / ' o \/ ■' / / / / / . ' / . ■■ / ■■■"^'^ ■■ rt S oj tr_z_/..^.' ^' / \->: ■■. \ ^x:\xx:^ \ d o ft 2 o B IS ky-,/^v-; , /;/ /'/V;/1n \\S\>:>vxS^ \ r ) ^1 N- o IP eo CO fVI eo ON CO o eo oa>eor*;voin'<*r3fvj^oweot^»eif)^rsfNJ^p 03 CO n 2: o 2; ■ 91 NUMBER OF SAViNL-b AbbULiAi iUl\:3 r o O en < O > < o W >t \ Q ^ ! on l^ //■ CO /, ■'■'/ VO '' wz^y~yv~/:A ooooooooooooopooooooo ddddddddddddooooooooo u O n n < u u a S e u o n « u n • 92- NUMBER OF SAVINGS ASSOCIATION i.OCATIONS u o n n < (0 u •o o ^ o o o o e o in o e o o n o o fM e e u o R R u I V 4.' fd .q 7- NIT>'BER OF CREDIT ITNIONS o u H Q H pi. b o Q 5 Q:^ W -3! m cn :g ;:^ ^ h o o ^s:^m^ \ .\- \--. \' , \ \._v_.^._i^:> - v -^ -/ T^-x;"x-^""^^^^ o \ ^__^... .- fVI -^r- \/—.y^^:-^ _.z ^ - I' \ . "^ X •-. \ eo cn V0 eo IP o GO 9 eo M (0 Of 2 ^ ^ / . y ,' / ■■ / jy . L^ ^jy / / // \\ W \ \\-.-X^.J^- ■\ \ V7v~:/-. / / 2 y y' ■ y .- / / v y y / y / / y / y'/^< VO LXX o in r: o o o in I o • o o \ \ .\-:nnv^.Vn^ o CO cn o in o o o in I o o R u u A u fa / 5 n u (d u I V « -94- NUMBER OF CU LOCATIONS \ \, \.:xx:^.\:\: / ^ / ^ Z' IP V / ■' / . / . .-^ Iz^^..: ^_ -^-^ \ V \ \ \ ^ N V N \ ^. . \\\ X \ ^ ■ \ '^ '^ X \ N "^ \ o < u o O W ^ ^ CO o u H n in ^ X ' .'• ,. »H . ■ / / ,- CM v ^. -X- . \ \ \ \, ■ ^s -■ \ s '^ \ \ . \ - \ \ \ ^- o »n V p--;7^-^7^-7^-q-'^r-^-~\-::^^- X V \^:^~^ . \ x--.\V' •>o^^ -^-^r-y^'—^-Z'yr / / ■' ■'' '/A / / -x . \ \ \ ^x N ■^■^.v / ' / / T^-v^TT^rNV C^^vV^ in 1/ AD \ / uL.Z-^. \\^ \ . \ \ \ \ ■^. N \ ^ -V, GO CO in e eo to tM CO 9^ ~T~^ / "7 ^ ^ y lO ■ / /^ »n ]\ \ \ X X x\xO-x^.:\\:\^,H- / ' ' • ^ .- / / s X \ \ ^ \ ' \ X -- X x X r—/ — ^y^- / y ' oo 9 o eo 9 b^ •95-- TOTAL NUMBER OF FINANCIAL INSTITUTIONS ('Banks, S S.- Ls and Credit Unions) m y. o ►— H — < U" '—K HH — < ___ in n d y. o n I-H D -1 .^j >— < "O <: 0) Ih >— H u U T3 ?^ d < * n 1-3 r/1 HH Jh d ^ O K W PQ >! "^ y. o o ^^^^^Mx^^mM: / 2. eL.^ - / / ik ^v Ji x-^- \ \ ,^._z_^ -Z.. ?3 ^x>v::-.^:o< N-<:^<>^>«;^ c\-X^ \ >>■ \ ^.-X xX.•X^^S^ ' \ ■ \ -:\- V c-vN • ~^: >X<' N^"^ ^ :^^ X<.^X:^X^x^^x^^^:^X^ 1,.^ / / t^/ ^^^z^^L^Lz: xxN^:;X.\ CO in GO CO n CO en fVI CO CO o o o o in o o o o n o o (M o o n a o d u JS CO /I n y -96- TOTAL NUMBER OF FINANCIAL INSTITUTION LOCATIONS ('Thousands ) ' r^:^ y 7 T- ^^ ^ ^, ' \^rx~r VO k\\\\\^L-...::_^-xi.x:-tX. ^^- i \ \ .^.^ x_ N .\\^X m o H <^ U o >^ o K,-.\ ,s\\ n o d 0) I u , » i n ! 1-3 : a I on ! ^ ■ d n ^"v- ..v-_ ^_y. V \ \ \ > ' ■■ ^ E^ v -y\-^ ■ '^ . \ -. ■.. eo in CO 9^ ^: .:_ Z li^x:. ... x_j^X;v_^._x^. "vv^-^r^"^" _ oo V- — . — I /- V_.: tn -|. .-to I ^ N^>v^ X^ / \ \ \ N kN:^ss^:>^;:^^z^lN^.:::^:i.xx^NX:^ ~r'^7[ M>^. ?1 i-^ / v^T \ "X^X-X" /K \,N ~ ^ M CO CO o eo tvjnasvo-^tvrvjeous-^fNi n f\if\if\ir\i ^ ^ ^ ^ 00 vo '^ rvi o G o Q o -97- North (Carolina Department of Commerce Janics t.. \lanm. C>i)\i.riu)r Claudi. 1 Fopi.. SttrLiarv ?6 Seuteir.ber 19BS MEMORANDUM TO: Terry D. Sullivan Director of Research North Carolina General Assembly FPOM: Phyllis A. Stephens lllyk^ Special Assistant RE: 1968 Branch Openings and Closings As you requested on '^ Septeinher 1Q8^, I have compiled information on the number o^^ branch openings and closings of all banks in North Carolina from 1 January IpBS through 30 SeDtember 198?. These statistics are listed on the enclosed chart. While I can vouch for the accuracv of the state-chartered bank fig-ares, the information for the national banks has come from various departments vithin each bank and has not been verified. Jr. addition to these statistics, you had requested additional in:^crmation about the ]oan/loss ratios we had researched for you. I spoke to Sarah last Friday, and she said you had decided to postpone that proiect. I vill not continue our research on these ratios un+il I hear from you. In the meantime, if I can be of assistance to you or yoar staff, please do not hesitate to contact me. CC: Commissioner William. T. Graham RECEIVED SEP 30 1988 ^^"""^.1 RESEARCH DIVISION Offici' ot C^nniniissioncr o) Banks • \\ Ijliani 1 . ( jraham. ("omniissinncr 30 North Sahshurx Srrccr • F. {). Bo\ 1^>\Z • Rakitih. North Carohna ::6:6-05i: • 1 (.kphonu M 1 y-'33-3Ul<. An 1 i)iul ( )pi>ctrnini;\ Alliriii.iini. Xitinn I mpinx cr -95- BRANCH INFORMATION FOR NATIONAL AND STATE -CHARTERF.n BANKS IN NORTH CAROLINA ] January 198R through 30 Spptpmhftr 1988 BANK OPENINGS CLOSINGS TOTAL NUMBER OF BRANCHES State-chartered (56) 47 National (15) 24 10 22 940 1006 TOTALS 71 7] 32 1946 -99- North Carolina Department of Commerce imts (i. Marnn. (jcncrnor (llaikk i Pope, SccrtTjrx October 31, 1988 Mr. Terrence T. Sullivan Director of Research North Caroline General Assembly The Legislative Services 0-^fice 21?9 State Legislative Puildinc Raleigh, North Carolina 7'76ll-9l8U RE: Interstate Banking Study Cominittee NoveiTiber if , 1Q88 Dear Terrv: VJe are pleased to enclose r^or the benefit of the Interstate Bankine Study Comr.ittee a syno-psis o"^ our experience in working vith the T'orth Carolina Fegional Reciprocal Banking Act fG.S. 53-20Q et seq.) in connection with FHNF's proTDOsed purchase of the MetroPank, N.A., in Charlotte. Together with this synopsis we enclose as Exhibits A through C proposed lee'' slative changes which we believe are necessar;" a'^ter having undergone the first interstate application. The basis ^or these changes are full"' explained in the svnopsis. Again, I regret ■th'=* neither I ncr members cf mv staff who work with these matters closely can be present for the Interstate Banking Studv Committee's November 1^. 1°^^, meeting. As you know, the Bankine Commission is meeting that day in Ashev-iiie and has a full agenda. I^^, however, after reviewing any of this material you need any f-urther explanation or if we may be of further assistance, please do not hesitate to let me know. f^l/am'T'GWrn^n- Commissioner of Banks Enclosure Ottn.!.- ot (.ommisMoiur ot Banks • William 1 . drahani. ('omniissioni.r 0 Nnrrh Salisburv Street • P. C), Box 2()^]2 • Raleigh, North Carolina 2'62b-{)S\: • 1 elephone 919.-33-3016 •\ri I qiui ( )();>nriunir\ Alhrnutni. -\i.ii: .: VICE ORES'^E^■ NORTH CAROUIMA BAIMKBRB ASSOCIATION P O BOX 30609 • BALEIGH NC STtZZ-OSffi 919^82-696Ci • 3709 NATIONAL DBIVl December 2, 1988 & z tjOj A .1- = «n:j- r\r ^^t ORES wEN" dans: , .v. .lAV! ; -'It'-:' • — li I V •■ ""^ EDM. •.: : t ' :oC' V ■CE oRES■DE^ -3ESr = ; ■- c?. VEc. The Honorable A. D. Guy Cochairman LRC Interstate Banking Study Committee Room 2115 State Legislative Building Raleigh, North Carolina 27611 The Honorable David H. Diamont Cochairman LRC Interstate Banking Study Committee Room 610 Legislative Office Building Raleigh, North Carolina 27611 Dear Senator Guy and Representative Diamont: At the November 16 meeting of the LRC Interstate Banking Study Committee, Commissioner of Banks William T. Graham submitted for consideration to the Committee three proposed amendments relating to interstate acquisitions by banks. The North Carolina Bankers Association was requested by the Committee to state its position in regard to the proposed amendments (Exhibits A, B and C of Commissioner Graham's letter to Terry Sullivan, dated October 31, 1988). The Association has reviewed the amendments proposed by the Commissioner and has no objections to their being recommended by the Committee to the General Assembly. The Association appreciates the opportunity to participate in the proceedings of the Committee and to provide such testimony and information as the Committee may deem appropriate. If I can be of assistance to you or the Committee or provide any additional information or comments, please so notify me at your convenience. With best wishes, I am Sincerely yours, ^?90U^^^. 7^ <^^^^ Edmund D. Aycock , General Counsel / eda: s ■106 APPENDIX 0 Remarks to the COMMITTEE ON INTERSTATE BANKING by THOMAS E. McCLURE ASSOCIATE DIRECTOR FOR ECONOMIC DEVELOPMENT CENTER FOR IMPROVING MOUNTAIN LIVING Novernber 16, 1988 I have been asked to share with this committee my views concerning the impact of the Interstate Banking Act on, among other zhmgs, the distribution of commercial credit. I come at -his toc-c as an economic development professional. I am the Associa-e Director for Economic Development at the Center for Improving Mountain Living. My responsibilities there include directing tne V/estern Regional Office of the Sr:all Business & Technology Development Center (SBTDC) and the Economic Development Adm^mistration University Center at Western Carolina University. Our office is involved in a variety of business and econom.i: develcp.ment activiiies. One of our most frequent activities is reparing business plans and loan packages for small and medium sized businesses trying to start up or expand m the western 28 counties of Nor-h Carolina. We see many prospective deals over zhe course of a year, m.any of which are never financed. D 107 This pc5- spring, our center launched a project to involve people througnout the 17 western most counties of North Carolina in uhe cevelopment of a regional economic strategy. As part cf this effort ^9 convened a series of public forums across the region, m which about 400 people participated. These participants included business people and economic development professionals among others. At each forum we asked these people to identify and discuss those factors that limit economic develcpr.ent in the region. Consistently, limited access to business capital was ar.ong the most important constraints lisied. I can nci prove to anyone's satisfaction that the difficulty of financing the start-up and expansion of small and medium sized businesses in western ::orth Carolina is a result of banking dereguleiicn , Access lo comir.ercial credit has long been a problerr. . I c=.n say v;iih conviction, however, that the interstate consolidation of banking institutions has exacerbated this proble.-.. And this is a conviction shared by my counterparts throughout the state. Rather than suggesting a change in policy concerning interstate banking, however, the point I want to make with ycu today IS that those of us who are trying to improve access to ccmmertial credit v.-ould be greatly aided by commercial lending disclosure by banks at the county level. ■\0^- No research has effectively measured the impact of deregulation on the availability of commercial credit end on economic development. Theoretically, one would expect that consolidation of assets would improve the ability of banks to do development lending. And some research has documented zhe limited sophistication of small banks and the resulting constraints on the zypes of loans they can make. For example, a szudy of commercial lending patterns in West Virginia, where mosi of the banks are small, found that the commercial loan products offered by smaller banks were r.ore limdted than those available through larger institutions.'' Another study in Wisconsin concluded that small community banks have limited capaciiy to do the sophisticated types of lending needed to finance economic development.^ Thus one could expect that by consolidating banking assets into larger institutions it should be possible to support more sophisticated lending. In addition, larger banks v.nth more diversified loan portfolios spread over numerous and diverse markets should be in a positicn to take more risk tnan smaller banks operating in more limited Hoggs, Eruce S., David J. Sorenson and ^^jidrew : Isserman. ComLmercial Bank Lending Patterns ano Econom: Development m VJest Virginia. MACED. January 198S. Taff, Ste-.-en J, Glen C. Pulver and Sydney D. Stanifort: Are Smiall Com.munitv Banks Prepared to Make Comrlex Loan: Universif..- of V,'isconsin, Madison. April, 19B4. ■109- local ir.arkers . Experience in v;esrern North Carolina and elsewhere, however, suggests that the greater sophistication and capacity of large mulzistate institutions does not translate into improved access to small business credit. It appears that instead of shifting assets into small end mediuir. sized business lending, the banks have shoved this lending, especially in rural places, further down their list of priorities. There are a nu.-TLber of factors that could explain this phenomenon. First, the transaction costs of smaller loans are net significantly less than for large loans. In some cases, small business lending may be more costly to transact. Therefore, it is far more profitable for banks to concentrate their lending on a sm.aller number of larger loans. Secondly, as banks gain access to rapidly growing urban markets it becomes easier to turn away from more rural markets that may be less dynamic and perhaps more difficult for them to understand. With miarkets that are expanding geographically, these institutions have amiple opportunity to invest in larger deals that are easier for them to analyze. A third factor that constrains rural and small business lending by large m.ultistete banks is the centralization and -110- bureaucracizi^ion cf che lending decision. Loan decisions that once were rr.ade by local officers in a matter of days or even hours nov: take wee>:s or months to work their way from the local setting to the dec::sion maker at headquarters. Many small businesses choose tc limp along undercapitalized rather than try to cut through the red tape involved in getting a loan. Apart from, the delays involved, unf amiliarity with local m.arkets makes it difficult for an officer at headquarters to gain the comfort level needed to sign off on a loan from a distant place. Little comfcrt can be provided by the local loan officer, because z'r.az officer is a junior player whose judgement is not tc be relied upcn. Consequently, few loans are made for small and m.edium sized ousinesses trying to start up or expand in the rural areas of uhe state . It 15 important for you to understand that I am not here today to tell you aocut the difficulty of financing bad deals. V.'e are having trouble financing businesses that represent sound lending cppcrtunities , and in many cases substantial developmental impact. In v;estern North Carolina, difficulty of ■ getting access to ccrrm.ercial credit is stifling development in economic sectors that are very important to our economy -- forest products, manufacturing, and travel and tourism. Here are som.e examples . -Ill- DIMENSIONAL LUMBER MANUFACTURER Two entrepreneurs (one a former furniture plant manager proposed to lease a vacant plant and install new equipment t: produce kiln dried dimensional stock for furniture companies. The deal would have created 45 new jobs within 12 months. C: the $953,000 needed for the project, the owners planned to inject $200,000. Several large banks were approached for financing. The only one that would even consider making the loan require! that the owners inject 30 - 40% equity, which was more than -..".e owners could invest. A more typical equity injection would r.=ve been 25%. To reduce their request to the bank, the owners arranged lease financing for the equipment. Nevertheless, tr.e loan request was rejected. DOWNTOWN REAL ESTATE DEVELOPMENT A national real es~are developer had initiated a multi- million dollar cown~own redevelopment project involving several buildings key no the revitalization of downtown Asheville. T.-.e project, which has substantial regional impact, was well under way when the consortiuir: of NC banks that had committed pemar.ent financing for the project backed out. This turn of events f:rcec the project to an abrupt halt and stalled it for over a year. Ultimately, the developer succeeded in securing permanent financing from the Bank of Scotland and construction financir.r from an institution in Florida and construction has been res_".ed. -112- FURNITURE FLANUFACTURER A group of investors proposed to purchase a closed furr.itur^ plant to reopen it and produce the same lines that had beer, manufactured there. The workforce and middle management were available, and a general manager, well known in the industry, v.-ai recruited. The S2.3 million proposed financing package inclucei an employee stock ownership plan and commitments from the local business coironunity. In addition, several local business pecple had comir.itted tc co-sign the note. The project would have re- established 200 jobs. The proposal was presented to four r.ajcr NI banks. Only one of these seriously reviewed the applicaticr. . It was ultimately rejected. STEEL v;HEEL FiANUFACTURER A mianuf acturer of atitom.ctive wheels wished to locate a nev.' plant in western North Carolina to serve the crowing automcti-."e industry in the Southeast. Eecause no banks in North Carolina v.'ould finance the project, the plant located in Canada where tne company received a very favorable financial arrangement. SAWyiILL This project involved a proposed employee buyout of an operating sawmill that was being sold due to restructuring cf a national company. The market for the product was strong, and v«'ould have involved export of hardwood lumber to Europe. Er.ployees were willing to invest $500,000 in retirement funis -113- held by ■che parent company. The total financing package was S2.2 million. And the project would have saved 90 jobs. The project was proposed to three major NC banks. Only one of these made an effort to put the deal together. Financing did not appear likely and the project was aborted when the parent company received another offer, which later fell through. Ulti.mately a buyer from out of state bought the sawmill with financing from an out of state bank. MANUFACTURER OF DISPOSABLE PRODUCTS A miinority entrepreneur presently manufacturing disposable products for use in hospitals proposed to expand the company in response to strong demanc. The expansion would have created 20 new full time jobs. The entrepreneur has presented his proposal, requesting $200,000, to several banks. None have responded favorably . PHARMACY Experienced pharm.acists in a small community proposed to open an independent drugstore. The entrepreneurs needed capital for leasehold improvements, fixtures, inventory and working capital. Inventory represented over half of the needed capital, and the supplier guaranteed buyback at S5%. Of the $85,000 needed, the ovmers were proposing to invest $15,000 in equity. Several banks have been approached. The only one that responded substantively said it considered the deal a "venture financing" and therefore outside its lending policy. E^:ERGENCy VEHICLE M.^A^UFACTURER This company produces ambulances by converting tr.ok or van chassis. Sales this year are projected at $12 to $15 r.illion. The company has experienced substantial and rapid grov;-.- and needed capital to finance this expansion. The entrepreneur requested SI million from several major NC banks to fir.ance inventory and receivables. None of the NC banks would finance the deal, saying the business was not profitable enouci. A NC bank eventually referred him to a New England bank that in turn referred him to a r.onbank commercial lender. Ultimately he succeeded at securing the needed funds from this out c: state lender at an effective interest rate of about 19%. CHAIN HOTEL DEVELCPI^^ENT A group of entrepreneurs proposed to develop a hirn-end chain miotel in a commiunity near Asheville. The develcr-ent would have included 6 0 rooms and the feasibility analysis was favorable. The total financing would be $2 million, including an SEA 5C4 loan. Bank financing was proposed for only 5C% of the total project value. The proposal has been presented to six financial institutions, and has been rejected by all c: them. MEDICAL SUPPLY KANLFACTURER An entrepreneur needed $150,000 to expand his business, -115- which r.anufactures medical supplies for hosrizals. Ke has 3 8 employees ar.c neeaec to expand to rp.eet stror.r demand for his products. Ke was unable to obtain financing from any NC bank, but a foreign bank with an office in NC did finance the project. LOCAL I-^OTEL A local entrepreneur, with a solid perscnal financial statement, purchased an old motel in a small town with a strong tourist trade. She sought $50,000 to repair and remodel the property. A proposal was presented, without success, to one major y.C bank. The owner now is pursuing financing out of state. CAMPGROUND F:)?. "GOLD WING" MOTORCYCLISTS Western North Carolina r-^-tracts thousanis of campers traveling on luxury motorcycles. A campground operator who presently- caters to this miarket proposed to expand his facilities and build sleeping accomjr.odaticns . He requested $70,000 for construction, with the loan to b*^ secured by land. The proposal was submitted to se\'eral miajor I^C banks. All of the banks rejected the application, because of the nature of the business. LUMBER COMPAICY An entrepreneur proposed to purchase a iDcal lumber company, the owner of which v;as retiring. The proposed $1.6 million financing package included an SBA 504 loan ana a bank loan of S800,C:0. The project would save 16 jobs. Several banks and savings and loans ".vere approached, but all insisted that the retiring seller zmance part of the deal. Consequently the sale has not occurred and the business is at risk of closing. Our experience is not unique to the western part of the state. Throughout North Carolina local communities are encountering the same problems illustrated by the cases I have described. In response to these problems local business leaders across North Carolina are taking initiative to charter new community banks tc address a part of the market that the interstate banks are ignoring. Since the beginning of 1986, 14 new banks have been chartered -in North Carolina. Recent conversations with Presidents of several of these new banks rex'ealed a co-ur.on experience and motivation. In markets served only by large .-.ultistate banks, loan decisions were taking too lone. High turnc"."er among local personrlel meant that business borrowers were frequently having to rebuild the banking relationship. local borrowers were unable to get the kind of personal attention that the interstate banks reserved for their largest customers. On the surface this latter problem may not seem like an important matter, but it can be critical. Not m.any businesses NC Banking Co~.~issioner ■ 1 1. 7 - savings ana loans were approached, but all insisted that the retiring seller finance part of the deal. Consequently the sale has not occurred and the business is at risk of closing. Our experience is not unique to the western part of the state. Throughout North Carolina local communities are encountering the same problems illustrated by the cases I have described. In response to these problems local business leaders across North Carolina are taking ir.itiative" to charter new community banks to address a part cf the market that the interstate banks are ignoring. Sir.ce the beginning of 1986, 14 nev." banks have been chartered -in North Carolina. Recent conversations with Presidents of several of these nev banks revealed a corroTion experience and motivation. In markets served only by large multistate banks, loan decisions were takinc toe long. High turnover among local personnel meant that business borrowers were frequently having to rebuild the banking relationship. Local borrowers were unable to get the kind of personal attention that the interstate banks reserved for their largest customers. On the surface this latter problem may not seem like an important matter, but it can be critical. Not many businesses NC Banking Commissione: -Its- conform to the standardized criteria used in the loan decision. This does r.ot mean that they are not credit worthy. Yet, loan requests t.-.at do not satisfy those criteria are not likely to be financed without personal attention by an officer who can use judgement to override the rules. This certainly has been a problem in the mountains where we rarely get the opportunity to make an oral presentation. Instead the application is submitted and sometir.e later, usually several weeks, the applicant receives a rejectior. letter. As ne'.-." community banks are chartered around the state, we may see scr.e improvement in access to capital for economic development. However, due to the small size of these instituticr.s it is not reasonable to expect them to meet all of the credit needs of small and medium sized businesses trying to start up ar.i expand around the state. With relatively small portfolios and local orientation, they will not be well positioned to bear risk. In addition, there will be limitations on the sizes of loans they can make, and probably on the types of loan products they can offer. We extect that other interventions will be needed. The Regional EtDnom.ic Strategy Project that I mentioned earlier is committed to improving availability of business capital in western North Carolina. A regional task force will be responsible for determ.ining what specific interventions are ■119- needed. We have great expectations about the potential of the newly established NC Enterprise Corporation and the new Microenterprise Fund pilot project initiated by the NC Rural EconoiTiic Development Center. These initiatives may be very helpful. However, as we in the west try to advocate program policies to ensure that these initiatives meet our region's capital needs, we will need a better understanding of the present market for commercial credit. One of the greatest obstacles that cur task force will face is the Isck of information about commercial lending by banks. The disclosure of commercial lending by banks would enable development of realistic interventions to address both perceived and real gaps in the capital market. It would reveal more clearly those gaps m the credit market that should be the targe' of statewide, regional or even local programs to provide development capital. Presently, our only method for learning about unmet credit needs is the kind of hit or miss approach represented by the cases I have described to you. Like the blind men trying to identify the elephant by touching only parts of it, we are not able to see the whole picture. Disclosure of commercial lending would reveal the whole elephant, enabling us to respond with remedies that are comprehensive and appropriate. -120- An effective corarr.ercial loan disclosure policy would reveal the numbers of comir.ercial loans in a variety of categories including size of loan, size of business, industrial sector of business, geographic location of borrower (i.e. county), and type of loan. Compliance should be encouraged through incentives. For example, the state treasurer could restrict deposits of state funds to those banks that voluntarily participate with cisclosure that meets standards set by state policy. Other incentives may be appropriate as well . CONCLUSIOr.' Interstate consolidation and expansion of our banking system is essential to a globally competitive financial sector. However, the consolidation of banking resources into large institutions that are not oriented to lending to the sm.all and m.eciurr. sized businesses that are the backbone of our economy, leaves iiT>portant credit needs unmet. To address these unmet needs, economic development practitioners need better information about present lending patterns. Commercial loan disclosure would be an important tool for providing this inf ormiation . -121 APPENDIX P TESTIMONY by KATHARINE MCKEE ASSOCIATE DIRECTOR CENTER FOR COMMUNITY SELF-HELP DURHAM, NORTH CAROLINA Before the NORTH CAROLINA GENERAL ASSEMBLY LEGISLATIVE RESEARCH COMMISSION on INTERSTATE BANKING 10:00 a.m. November 16, 1988 ■122- -1- Good morning, Messrs. Co-Chairmen and members of the Commission. My name is Katharine McKee and I am the Associate Director of the Center for Community Self-Help. Thank you for inviting me to appear before you today to present our experience on the effects of interstate banking in North Carol ina. The Center for Community Self-Help is a Durham-based organization that was founded in 1980. We provide technical assistance and financing to create and save jobs, to extend housing opportunities to low- and moderate-income families, and to promote community development in North Carolina. In our efforts we concentrate particularly on low-income, minority, and rural communities and individuals. In 1984 the Center created two financing vehicles to support its work. Self-Help Credit Union is a state-chartered, federally-insured credit union. From initial capital of $57 raised from a raffled cake donated by a minority-owned bakery that we had helped start up in New Bern, Self-Help Credit Union has grown dramatically and currently has assets of about $12 million. Our second financing affiliate is a $3 million non-profit revolving loan fund that makes higher-risk loans to small businesses. We see our job as trying to meet those financing needs that are not currently being met by banks and thrifts, because they are perceived as too risky or too costly. Last year, we loaned roughly $4 million for low-income housing and job development. We thereby were able to save or create over 200 jobs and to stabilize another 700, primarily in rural communities. We also provided mortgages for over 100 low-income minority families, all first-time homeowners that had been denied loans elsewhere. I welcome the opportunity to appear before you. The issue addressed by this Commission is vitally important, in light of the central roles played by banks in the health and survival of North Carolina's communities. We are seeing the effects of interstate banking and deregulation of financial markets on a daily basis. Many of these effects are positive. Yet the increased size and geographic reach of banks, resulting from interstate banking, unfortunately has created new obstacles as well to the prosperity of the constituencies we serve and their communities. In the next few minutes, I'd like to share with you some concerns that my colleagues and I have about the consequences of interstate banking in North Carolina. We hope that you will seek to address these issues in your report and recommendations to the General Assembly. We are concerned that the problems we are observing today will grow even more serious with the advent of national interstate banking in the not too distant future. The leader of one of North Carolina's largest banks recently stated that by the early 1990s, his bank hoped to be three times as large as it is currently and to stretch from North Carolina to California. Clearly this will bring some benefits to that bank and perhaps to North Carolina as a whole. But we feel it is also important that interstate banking not significantly worsen the plight of North Carolina's disadvantaged communities. -123- -z- My presentation has three main points: 1) In many areas of North Carolina, significant gaps exist in the availability of credit for business development and housing. These gaps are widening. At least in part this is due to interstate banking and the restructuring of financial markets that has accompanied it, and to the creation of secondary markets for many types of loans. These gaps should be of serious public concern, because they are hindering equitable development in many of the state's communities. The best ideas and leadership in the world cannot substitute for capital, and we've seen too many viable and much-needed projects and businesses fail because the right kind of bank financing was unavailable. Furthermore, there is reason to believe that these gaps will only get worse, as North Carolina banks get even larger by moving into Texas this year and into national markets in the 1990s. 2) We need more information about the specific nature and scale of bank and thrift lending in this state, so that we can better identify those credit gaps, determine if they are worsening as banks get larger, and seek to address them. In our view, it would be particularly useful to have information on commercial loans -- where they are being made, to which types of businesses, and for which loan purposes. Such information would serve the interests not just of public officials and regulators of financial institutions, but of depositors, borrowers, entrepreneurs, development organizations such as ours, and the banks themselves. 3) And finally, I would like to urge this Commission to consider how state public officials and regulators might be asked to analyze and use such information on lending patterns, if it were reported on a regular basis by financial institutions. One way to use it would be to promote and reward financial i nsti tutions" that are making serious and sustained efforts to meet underserved credit needs. Another would be to identify those credit needs that banks cannot be reasonably expected to serve, so other remedies could be devised, such as public guarantee programs, equity pools, and the 1 ike. It is important, in our view, to have these disclosure and incentive provisions firmly in place as soon as possible, so they can make it as attractive for North Carolina banks to invest in North Carolina as in Texas and Cal ifornia. Credit Gaps -- Observations from the field: In the course of carrying out our financing activities across the state, we are seeing two principal effects of banks increasing their size and geographic scope. The first is disinvestment from some rural areas -- that is, some bankable business, home mortgage, and consumer loans in North Carolina's rural areas and small towns are not getting made. We are also seeing an erosion in the availability of certain types of business loans, particularly small loans and loans to firms with strong track records and management but marginally inadequate cash flow or collateral. -124- -3- The overall scale of these effects is impossible to judge, because tne data are unavailable. Banks and thrifts are not required to disclose to the public their commercial or consumer loans in the same detail as their mortgages. But even though we are unable to quantify the aggregate impact of these changes in lending patterns, the changes are no less real , as should be evident from the testimony already heard this morning. Drawing from our experience as a small, community-oriented lender, I'd like to briefly set forth some specific examples illustrating why we think that rural and small business disinvestment is occurring. Our experience suggests that interstate banking has had the following effects, each of which serves to reduce in some way the availability of credit to rural and small businesses: a. First, it has accelerated the consolidation of financial institutions and increases in their scale. TTTis in turn has tended to lead to more centralized decision-making about loans. b. We are also seeing increased reliance by financial institutions on formula- rather than character-based lending criteria and decisions" And the formulas are becoming more conservative in some cases. c. We are also seeing changes in staffing patterns in rural branches, in particular the cycling through of loan officers, who as a result have less familiarity with local economic conditions and entrepreneurs. Also, in some cases, we see evidence that the lending authority of local loan officers has been reduced as they have been acquired or as their bank has acquired others -- that is, they are expected to refer larger loans that they could once approve to headquarters for a final decision. These three factors -- centralized decision-making, formula-based lending, and the move of loan officers from Murphy to Charlotte to Dallas and perhaps to Los Angeles -- is due in large part to the opening up of new opportunities across state lines and to the North Carolina superregional banks getting wery big very fast. The combination of these three factors in turn leads to more conservative lending practices and additional credit gaps. Why is this so? It used to be the case that if a business loan application was "marginal" in terms of cash flow or collateral, the local banker could complement the quantitative financial analysis with more qualitative and subjective information. If he or she had been in the community for some time, for example, it would be possible to factor in the borrower's track record as a manager, technical expertise, previous repayment performance, or reputation around town. The banker could go visit the business and get a better feel for it than the numbers alone could show. He or she would also be be more likely to know the ins and outs of the local economy and those industries on which it relies. All of this additional information, which cannot be easily translated into ratios and figures, could help that banker determine whether it was likely to be a good loan or not. ■125- -4- With the rapid expansion and restructuring of the North Carolina banking industry, v/e can no longer count on this kind of crucial but subjective knowledge being brought to bear, as loan officers are recycled from one branch to another, as decisions are shifted to Charlotte or Winston, and as the "art" is removed from lending and is replaced by calculus. Yet in the absence of such subjective judgment, it only stands to reason that some good loans will be rejected and lending will become more conservative. We are hearing from our clients that they are no longer able to get loans that local loan officers were once able to approve. For example, one of our potential borrowers, a successful 250-employee company located in a very rural area of the state, has seen its local bank acquired by one bank, and then the acquiror bought by a third bank. With each ownership change, lending to the company became increasingly based on formulas, with little regard to local economic conditions and the company's reputation. Another of our borrowers, a manufacturing concern located in rural Eastern North Carolina, had credit facilities with two local independent banks. One was bought by a superregional and the other by an international financial institution. Following the ownership change, the firm's credit facilities were not renewed and it was turned down for future credit, even though there had been no previous repayment problems and the company's financial status had improved. We have had a very good lending relationship with this business for the past several years. A final example comes from the West, where one of our staff referred an applicant, an existing service sector business with a good track record and good cash flow but weak collateral, to a newly acquired branch of one of the big banks in town. We felt it was an ideal candidate for an SBA guarantee, a service we were unable to provide. The local loan officer put the business owner together with a professional loan packager, reviewed and approved the package, end forwarded it to headquarters. Word came back that the loan had been turned down, with the explanation that the bank "didn't do that kind of loan anymore." Possible other trends attributable to interstate banking include the following: d. In some areas, there are fewer banks and branches, due to mergers and acquisitions, consolidation, and branch closings. As a result, local businesses have fewer opportunities to find a local lender. e. Interstate banking permits North Carolina financial institutions to seek more profitable loans and market niches outside the state instead ot focusing on in-state expansion in underserved areas. Given the choice, it makes sound economic sense for a large, sophisticated bank to pick expansion into California over expansion into Eastern North Carolina. Surely they cannot be faulted for this, but the legislature and the public needs to know the impact of their choices on North Carolina citizens and businesses. -126- -5- f. We are also seeing evidence that some financial institutions are "cherry-picking," that is concentrating increasingly on the most profitable loans. We worry particularly about their decreased wi I nngness to make smaller loans. One of my colleagues called one of the superregionals to inquire about a $30,000 loan to a successful small manufacturing firm with which we had been working. He was told by the loan officer that the bank didn't make business loans under $50,000, and was referred to the consumer loan division. It is unclear to us whether the loan application would have gotten appropriate analysis by a consumer loan officer who specializes in credit cards and car loans. Especially in rural areas, we find there is a lot of demand for loans under $50,000 by existing, profitable firms. I'm not meaning to suggest that the banks are wrong not to make these loans, given the other opportunities they have elsewhere, but it poses a public policy problem when bankable but small deals are not getting done, and as a result, communities are not sharing in the prosperity as they might. g. And finally, it is clear that interstate banking can lead to the diversion of the bank's management talent to newly acquired institutions in other parts ot the region. This is especially problematic if their new acquisitions are troubled, as is the case with NCNB's recent Texas purchase. Our financing roles These are the problems we're seeing out in the field. We know that some of them are exacerbated by interstate banking. We created SHCU to try to fill some of the resulting credit gaps. But we are tiny and will never be able to meet even a smidgen of the overall demand. So one of the things we try to do is to demonstrate that certain types of loans can be made without sacrificing safety and soundness considerations. We hope that our experience might help other lenders to expand the range of loans they are willing to make. I should make it clear that SHCU does not make high risk loans. It cannot, because it is using its depositors money, and our federal insurers limit the risks we can assume. But we have identified a number of credit gaps that can be met, where the market currently overestimates the risks. Let me give you an example: We did some research last year on how we might expand our home mortgage lending program in Durham. We went down to the County Court House to look up all the completed foreclosures that had occurred in Durham County the previous year. We compared that to the total number of outstanding home mortgages in the County. Clearly there is an exceptionally low default risk, and yet many families are unable to get mortgages. And clearly there's a huge gap here between what lenders can do and what they are doing to make home ownership possible for residents of the County. Reassured by this information, we have made over 100 mortgages to families that were unable to get home loans from other lenders. Our repayment experience has been excellent. -127- -6- In this case the problem is exacerbated by the secondary market on which banks increasingly rely to resell the mortgages they originate. The secondary market sets standards from which lenders cannot deviate if they want to resell their loans. These standards create the same problems that formula-based lending does in the business loan examples I gave earlier. We have found, for example, that the single best predictor of whether a family is a good risk for a mortgage is their previous rental history -- yet this type of information is not weighted heavily in the formulas. I am not wishing to suggest that the secondary housing market is a bad thing. On the contrary, it has made it possible for many lenders to greatly expand their home mortgage loans. The problem is that reliance on formulas, whether for business or home loans, screens out some creditworthy borrowers. And our experience suggests that this formula-based lending is on the rise, due at least in part to the structural and management changes accompanying interstate banking. Ideas for the Commission to consider In this and earlier presentations, you have heard some troubling examples of the effects of interstate banking within North Carolina. These are, of course, only examples, which brings me to what I think is the most important point of this testimony. We have virtually no information on which to base a detailed and careful analysis ot all the positive and negative results of interstate banking. There is no source ot comprehensive data available to the public on the cFanges that have occurred in patterns of lending and services in this state, as our banks have consolidated and bought up financial institutions all across the region. To track pattens of residential mortgages in large cities, we have the data provided by banks to their regulators and the public under the Home Mortgage Disclosure Act, passed by Congress in 1975. This data has proven invaluable to citizens, community development groups, bank regulators and other public officials seeking to assess whether financial institutions are fulfilling their responsibilities to meet community credit and reinvestment needs in their service areas. And yes, the data have also proven useful to banks trying to see how they might develop appropriate, profitable new products and services. The availability of HMDA data has made possible a very fruitful dialogue between the public and the private sectors about better ways to meet housing needs. And contrary to the lenders' initial fears, the data have not been particularly expensive to collect and report. A report from the Federal Reserve Board estimated the average annual costs of HMDA compliance at $713 for the over 8000 reporting institutions. But on the commercial side, that crucial information with which to initiate the dialogue is not available. This is because financial institutions are not required to report data comparable to HMDA on their commercial lending policies and practices. In recent years, a number of state and municipal governments have taken steps to remedy this, by passing laws and formulating rules that banks and thrifts report such information. It is important to understand that those laws and rules do not require financial institutions to change their lending patterns, merely to report them. -128- I would like to suggest that it might be wise to consider such steps in North Carolina. As the testimony offered today and last spring strongly indicates, dramatic changes are occurring in our financial services industry. And the change will come faster and on a larger scale with the opening of the Texas market this year and national markets in a few years' time. How would commercial lending data be used? I can see a number of immediate uses to which this information would be put: First, it would permit public officials, regulators, and the banks themselves to track the effects of interstate banking and other changes in the industry. Which areas and industries are receiving more or fewer loans and services? Which commercial credit gaps are being better addressed as a result of geographic expansion and consolidation? Are there markets in which increased competition has yielded lower-priced and more sophisticated banking services? Are there markets in which the opposite has occurred, and there is empirical evidence of the kind of rural and small business disinvestment to which the other speakers and I have referred? At this point, we just do not know in any systematic way. We can recount to you our experiences out in the field, but we have no way of obtaining and analyzing the hard data. A second way in which such disclosure data could be used is to identify and reward those financial institutions that are especially active and creative in meeting the commercial credit needs of North Carolina communities in their service area. Other states and municipalities have used analysis, of commercial lending patterns as one variable in determining which financial institutions should be eligible to receive public deposits, loan guarantees, and other privileges and powers. A third use of such data would be to identify those credit gaps which are vital to the public interest, but simply cannot be met directly by the banks and thrifts, due to their regulatory and stockholder responsibilities. We heard a very good example this morning, that of the North Carolina Enterprise Corporation. Mezzanine financing was identified as a critical economic development need, but one that the banks could not address by themselves. The Enterprise Corporation permits the combination of public and private capital in a non-bank institution that can meet that need. Commercial lending disclosure would permit other non-bank lenders such as the Self-Help Credit Union, the SBA Certified Development Companies and the COG revolving loan funds that operate around the state to target those gaps that the banks cannot serve. It would let us identify particular areas and types of companies that are underserved. Finally, and perhaps most compellingly, I believe that the depositors in banks and thrifts have a right to know how their money is being used, so they can decide where to put it. 129- -«- Think of these public disclosure measures as giving depositors a Truth-in-Savings guarantee that parallels the Truth-in-Lending disclosures they receive when they borrow money. I am not suggesting that the banks should be forced to do things that they do not see to be in their own best interests. Lending in rural areas will always be higher cost than in cities, for example, due to the lower population density. But our banks are getting the considerable benefits of deposits from those same rural areas, and those rural depositors should be able to make an informed choice as to where they place their savings. I would guess that many rural citizens would prefer to see a substantial share of their funds reinvested in their community and region, and that they would weigh this variable along with others such as interest rates and service. We have certainly found this to be the case. Self-Help Credit Union targets its lending to businesses, home mortgage programs, and community development projects that benefit underserved constituencies. We provide our borrowers with ample information about the loans we make, and we have found our reinvestment record to offer us a wery powerful marketing tool in attracting new deposits. Our affirmative lending policies and practices constitute our principal competitive advantage. These policies have proven to be good business for us. We feel that disclosure would help make it good business for North Carolina banks to continue serving the credit needs of North Carolina businesses and communities, as they expand their vision to the Gulf of Mexico, the Great Lakes, and the Pacific Ocean. ■130- Financing for North Carolina's Low-Income Communities The Center for Community Self-Help, based in Durham, is North Carolina's only statewide ontar fnr community development organization that provides management assistance and fmancing to create . jobs and housing in depressed areas. The Center's Self-Help Credit Union was this country's first OmmUnity statewide, private-sector financial institution focusing on economic development in minority and iow- plf. income communities. ri Examples of the Center's 1987 Accomplishments ■ Loaned more than $4 million for low-income housing and job creation. ■ Used its financing to save or create over 200 jobs, and stabilize another 700 jobs, in rural communities. ■ Provided mortgages for over 100 low-income minority famihes, all first-time homeowners, that had been denied loans elsewhere. ■ Financed day care centers providing more than 100 children with affordable care. ■ Financed businesses in all areas of the state. Examples include: An apparel factory in Bertie County owned by 60 minority women; A 125-person hosiery firm in Thomasville; A 300-person worker-oN^Tied recreational services company in Swain County. ■ Developed and financed a multi-unit housing project for the elderly. ■ Assisted minority credit unions in eastern North Carolina. ■ Financed several church-sponsored programs for the homeless. ■ Consulted with public entities on the design of low-income home-ownership programs. The Center has been internationally recognized for its work. The United Nations selected the Center from among 2000 organizations as one of the 20 most successful economic development organizations in the United States. Both President Reagan's Policy Task Force on Capital Mobilization for Low-Income Communities and the Canadian Prime Minister's office have pointed to the Center's work as a model. Visitors from more than 30 foreign countries and 35 states have visited the Center and its projects. •131' di-iF r-;^^^ *-;,;, C'rio- mmi^^ n.'rham Nnrth r.^rniin;^ ?770l H^Hl (919) 6S3-3016 STATEMENT OF SERVICES The Need ■ Despite overall improvement in North Carolina's economy since the Center for Commu- tar fr\r ""^ Self-Help (CCSH) was created in 1980, stagnation, struaural underemployment, and plant HCi lUi closings continue to plague many communities. Low-income workers, minorities, women, and fimunity rural residents suffer disproportionately from the State's uneven development patterns. Cocx- r. isting with prosperous, growing communities are many in which secure and well-paying jobs, entrepreneurial opportunities, and affordable housing and day care are in short supply. Yet important new opportunities are also apparent. In particular, the infrastructure of or- ganizations engaged in community economic development activities is larger, more experi- enced, and more sophisticated them it was in the early 1980s. Demand has increased for responsive, development-oriented financing and technical assistance for business, community revitalization, and housing initiatives. The Center for Community Self-Help For the last eight years, CCSH has worked to create and stabilize jobs and housing in rural and urban North Carolina. Two critical barriers stand in the way of economic self-sufficiency for disadvantaged people and places: capital and management skills. CCSH has developed specialized capacities to address both problems. Our financing division consists of three affiliates. Self-Help Credit Union, with federally- insured deposits and assets of over S8 million, makes secured loans. It serves the full range of small business and community development borrowing needs, focusing particularly on em- ployee-owned companies, housing development, residential mortgages for low-income fami- lies, and projects sponsored by non-profit organizations. Self-Help Ventures Fund, with assets of over $1 million, provides higher-risk debt and equity financing to employee-owned compa- nies and cooperative housing projects. The third affiliate, Englewood Investment Corpora- tion, provides debt or equity financing for conversion to employee ownership of existing, larger companies. Its assets stand at $1.3 million. In 1987, CCSH financing affiliates made loans emd commitments totalling almost S4 million. Our technical assistance division complements the financing division by providing busi- ness, educational, and organizational assistance, primarily to borrowers or potential borrow- ers. On occasion it also provides project leadership, and engages in policy analysis required to carry out its work. Since its inception, CCSH has assisted several dozen enterprises in both the manufactur- ing and service sectors. Real estate initiatives include a minority-owned shopping center, multi-unit housing for the elderly, mortgage programs for low-income housing authority residents, shelters and permanent housing for the homeless and battered women, and down- town revitalization efforts in Durham and Asheville. In 1987, projects supported ranged from an apparel factory in Windsor to a river rafting company in Swain County to migrant farm- worker housing development in Smithfield. -132- 413 E. Chapel Hill Street ^Hl^ Durham. North Carolina 27701 mm^m (919)683-3016 Fees for Financing and Services While many of the loans made by our financing division are perceived as "too risky" by other financial insti- tutions, interest rates and loan fees charged by CCSH are comparable to those of more traditional lenders. Fees for technical assistance and management consulting depend on the nature of the service, with rates starting at S25 per hour. Assistance to low-income groups, however, is based on ability to pay and the likelihood of project success. Inquiries from such groups are welcome. Management StafTof the Center for Community Self-Help Martin Eakes, Executive Director. Mr. Eakes, a co-founder of CCSH, holds a law degree from Yale, a master's degree from Princeton's Woodrow Wilson School of Public Affairs, and a BA from Davidson College. A nationally recognized expert on employee ownership and development finance, he also has extensive experi- ence in business planning and management systems in a variety of industries. Katharine McKee, Associate Director for Program. A graduate of Bowdoin College, Ms. McKee received a master's degree in international economic development from Princeton's Woodrow Wilson School. Previously she served with the Ford Foundation as an economist in its Field Ofiice for West Africa and its Rural Poverty and Resources Program in New York. Responsible for overall program development, she is also part of the CCSH business advisory team. William Bynum, Associate Director for Education. Mr. Bynum holds a degree in political science and psychol- ogy from University of North Carolina, where he served as an advisor to UNC officials on minority issues and chaired the UNC Black Student Movement. He has held various positions in community service, politics, and minority affairs. At CCSH, he is responsible for designing and implementing employee education programs. Bonnie Wright, Manager, Self-Help Credit Union. Ms. Wright, a graduate of Davidson, has a masters degree in Public and Private Management from Yale, with an emphasis in finance. A co-founder of CCSH, she led the development of Self-Help Credit Union, which she now manages. Ms. Wright is experienced in feasibihty studies, loan analysis and financial reporting systems. Thad Day Moore, Operations Manager, Self-Help Credit Union. Mr. Moore holds a BA. degree from Wake Forest. He previously managed a scrap metal company in Greensboro, and he has extensive experience as a business developer and finance manager for employee-owned companies. Currently he manages SHCU's op- erations and CCSH's finances. Robert Schali, President, Self-Help Ventures Fund. After receiving a graduate degree in Regional Planning from the University of North Carolina, Mr. Schali served as an economic development specialist for the State and helped establish North Carolina's Community Development Block Grant program. He has also served as the financial manager for a regional food distributor. Mr. Schali assesses candidates for investment by SHVF and structures those investments. David McGrady, President, Englewood Investment Corporation. Mr. McGrady is a graduate of King College and Harvard Law School. As an attorney with the Atlanta law firm of King and Spalding and with Simpson, Thacher and Bartlett in New York City, he worked on a variety of corporate finance projects, including lever- aged buyouts, public offerings and bank financings. Mr. McGrady reviews potential investments by EIC and structures employee buyouts sponsored by CCSH. ■153' Sdf-Hdp Mortgage Loans What does Self-Help Credit Union look for when a person applies for a loan to purchase a home? The following list gives a basic idea of what the Credit Committee will consider in approving or denying a loan application. DM/lncome RMtio: Income of the borrowers is large enough to cover the loan pay- ment, utility costs, taxes and insurance on the house. All of these costs on a monthly basis generally should not exceed 30% of the Borrowers' monthly income. If you have charge cards or other installment debt, your monthly payments on all these loans plus your monthly housing costs listed above should not exceed 35% of your monthly income. If your monthly debt payments are higher than this amount, you should consider whether you have a friend or relative of yours who would l>e willing to co-sign the loan with you. Credit Rqxwt The Credit Union will order a credit report for all home loan applicants. If your credit report shows judgments, a bankruptcy, or a failure to stay current on your installment debt, you will probably need a co-signer who owns a home and has a good credit report before the loan can be approved. Credit report problems more than three years ago generally will not disqualify you from a loan. Dopn-Paymen/.Twenty percent or more of the purchase price of the house is gener- ally considered a reasonable down-payment Unlike many banks, the Credit Union does allow you to borrow part of your down-payment amount from your friends and family. If you meet all the other requirements for a loan, but lack enough savings for a 20% down- payment, you may want to consider our Sponsored Home Loan Program, which requires a minimum of a 5% down-payment. Appnisak The Credit Union will order an appraisal of the value of the home you are purchasing. The Credit Union will generally make loans no greater than 80% of the appraised value. Stability: Buying a home when other parts of your life are in a state of change is not a good idea. Generally, we will verify that you have worked at yourcurrent job and lived at your current address for at least one year. The above guidelines are not hard and fast rules, but they cover 90% of the cases. If you ha ve problems on only one of the requirements, try to find someone who will co-sign your loan. A strong co-signer with good income and a good credit history will strengthen just about any home loan application. -13A- 413 E Chapel Hill Sireet ^^m PO Box 3619 Wm^ Durham. North Carolina 27702-3619 ■■■ (919) 683-3016 The Self-Hdp Sponsored Loan Program The Sponsored Home Loan Program is a special effort by the Self-Help Credit Union to be of service to families who do not meet or are uncertain whether they meet the normal requirements for obtaining a home purchase loan. The "Sponsors" in this program are people that you find, who believe in you enough to co-sign your loan with you. You will have to find a few loan Sponsors who have owned their current homes for at least one year. The Credit Union will obtain a credit report and a signed financial statement showing personal assets and debts for each Sponsor. The goal of the Sponsored Home Loan Program is to shift some of the responsibility for evaluating your loan application to people who know you well. Where can you find loan Sponsors? The most likely Sponsors will be parents or other relatives. Another likely group would be close friends you have known for many years from church or work. Sponsors can participate in one of the three following ways: Share -Security MadeL Two or three Sponsors agree, at the time the home purchase loan is made, to pledge as collateral money they put into special savings accounts at the Credit Union. These accounts, plus the borrower's down-payment (5% purchase price minimum), must equal at least 20% of the price of the home being purchased. Sf>onsors will earn interest on these savings accounts, but no money can be taken out of the accounts until the loan is paid off or until the borrower has paid on the loan for thirty-six consecutive months without any late payments. JotTtt NoteModd: One or more co-signers agree to be fully liable on the loan note with the borrower. These Sponsors will be responsible for payments if the borrower gets behind and for any losses the Credit Union suffers if it has to foreclose on the home. The Sponsors have to put up cash only if the borrower gets behind in his or her payments. Limited Guarantee Modd: This model is the same as the Joint Note Model, except that the borrower will have to obtain one Sponsor to provide a repayment guarantee for each $10,000 of loan amount that is requested. A person could be a Sponsor for up to two additional borrowers, providing timely payments have been made on a previsously sponsored loan for at least one year before another sponsorship is begun. If the borrowing family defaults, neither the borrowing family nor any of the Sponsors can borrow or sponsor someone to borrow from the Credit Union. Moreover, failure to keep the loan current may result in a bad credit report for both theborrower and all of the Sponsors. Hence, asking someone to be a Sponsor and agreeing to be a Sponsor are very serious undertakings. In every case, the borrower must make a 5% cash down payment APPENDIX Q STATEMENT OF » TOM SCHLESINGER DIRECTOR, SOUTHERN FINANCE PROJECT TO LEGISLATIVE RESEARCH COMMISSION'S INTERSTATE BANKING STUDY COMMITTEE RALEIGH, NOVEMBER 16, 1988 •1?6- Mr. Chairman and members of the Committee, I am Tom Schlesinger, Director of the Southern Finance Project. The Project is a nonprofit research center located in Charlotte. It works with citizens groups, press and public agencies and officials around the Southeast who are interested in monitoring financial markets and institutions. We appreciate your asking the Project to present its views on the subject of interstate banking. You've heard other speakers today describe some of the gaps that remain unfilled in North Carolina's financial marketplace, despite the ballyhooed arrival of regional interstate banking. I want to talk about another problem--the gaps in the information that is necessary for citizens, business owners, legislators, journalists and others to gain a full understanding of how our state's financial economy works and whether it is broadly serving the public interest. The questions that your committee has posed are tremendously important to the wellbeing of the state. But without adequate information, it is probably impossible for you or any other group to arrive at accurate, careful answers to those questions. Our organization's experience is that, despite its importance, such information is not ava i 1 ab 1 e. Over the past couple of years, the Finance Project has conducted studies of banking trends in North Carolina for groups like Legal Services and the Rural Economic Development Center. We served as primary consultants to the Atlanta Journal and Const i tut ion' s 137- pathbreaking 1988 investigative series on redlining. We've obtained government computer tapes that show every mortgage loan made by each f edera 1 1 y- regu 1 ated lender in each urban census tract in the U.S. and tapes that show each SBA-assisted loan made in every southeastern zip code since 1982. We have extensive data on each of the biggest five dozen bank holding companies in the region. We can show you that since the advent of regional interstate banking, First Union has maintained the lowest loan-asset ratio among the 15 biggest bank holding companies in the southeast; that in 1987, NCNB didn't make a single SBA 7a loan in its hometown (after averaging more than five per year between 1982-1985); that in 1987, Wachovia slipped behind its previously paltry levels by originating only 1.1 percent of its Mecklenburg County mortgage loan volume in predominantly black census tracts (together those tracts account for 21 percent of the county's population); that NCNB, First Union and Wachovia, between them, probably have at least a billion dollars in LBO loans outstanding; and that commercial bank lending to North Carolina agriculture has almost dropped out of sight in the past couple of years . Most of us would probably agree that this is interesting information. But it's also piecemeal information. Despite the Finance Project's tapes and computers and files and diligence, that's about the best we-- or most anybody else--can offer, given the limits of available data. ■138- SBA loans only represent the tip of the iceberg of all lending to small business. Mortgage loans recorded in compliance with the federal Home Mortgage Disclosure Act (HMDA) likewise only amount to a fraction of all the residential real estate lending done in urban areas and tell us nothing about mortgage lending in rural counties. Information that finanical intermediaries disclose about themselves varies tremendously from case to case but it's almost always limited. In a minute, I'll try to summarize why we think all this matters. But first I'd like to note that the need for good financial industry information will, if anything, only increase-. One reason, as Mr. Hideout told this committee last March, is that pressures are growing to establish a system of nationwide interstate banking. Today, North Carolina and the rest of the Southeast form the only contiguous area of states that have no provision to move to nationwide banking in the future. But NCNB's top managers have publicly indicated that they want the region to make such a move. Managers of other big southeastern financial institutions likely will f o 1 1 ow suit. If nationwide banking breaks down the South's protective wall, it will be tremendously important for North Carolina's citizens, financial regulators and other public officials to understand exactly how banks headquartered in our state are going about their business in New York, California or Minnesota. We will also need the ability to know what 139 Citcorp, Chase Manhattan. Security Pacific, First Chicago and other huge banks are doing with other people's money inside our borders. Back in the spring. Mr. Hideout told you that when commercial banks lost their monopoly on financial information and the ability to analyze ii they also lost market share to new competitors in the financial intermediation process. That's true as far as it goes. But the logical question is: who can afford to take advantage of this wide- open access to information? You can if you're a money market fund or a mortgage banker or if you're a company with a billion dollars in annual revenues that's wondering whether to do its next round of borrowing through banks or the commercial paper market. But if you're an everyday nonrich citizen trying to take out a mortgage or keep a small farm or small business going, the information revolution has done virtually nothing to benef i t you. If you're trying to decide where to put your savings, or if you're a cash manager trying to place public funds in a depository that has the best record of investing in your home community or county, you' 11 be shooting in the dark^ So with the need for better information growing all the time, let me offer a few examples of how the Interstate Banking Act could be improved so as to level the informational playing field. lAO 1) Encourage financial institutions to make public regulatory agencies' assessment of their condition and enforcement actions taken on the basis of those assessments. Institutions could regularly provide standardized summaries of examination reports and any enforcement actions undertaken by state and federal regulatory agencies. This proposal was first made in the mid-1980s by the FD I C under the very conservative leadership of former Chairman William I ssac. 2) Provide a standardized accounting of the distribution of mortgage, consumer and commercial and agricultural credit by geographic area and borrower type. Institutions would report: a) mortgage loan originations in non-MSA counties, using the HMDA disclosure format. Mortgage loans by all subsidiaries would be reported and identified by the originating subsidiary; b) the number, aggregate dollar amount and average size of consumer loans originated, sold and bought in each NC county Ccounty data could be reported by census or zip code tract) in which the institution makes, sells or buys such loans; c) the number, aggregate dollar amount and average size of commercial loans originated, sold and bought in each NC county in which the institution makes, sells or buys such loans; d) the number, aggregate dollar amount and average size of commercial loans originated, sold and bought in NC for the following categories of enterprises identified by SIC numbers and amount of annual sales; e) the number, aggregate dollar amount and average size of agricultural loans originated, sold and bought in NC for farms identified by acreage and ownership form; f) the number, aggregate dollar amount and average size of commercial •141- and agricultural loans originated, sold and bought in each state other than NC ; g) the number, aggregate dollar amount and average size of commercial and agricultural loans originated, sold and bought outside the United States; h) an analysis of the competitive impacts that the institutions' non-NC commercial and agricultural borrowers have on the state economy; i) the geographic location and SIC of clients to whom the institution has issued letters of credit, standby letters of credit and guarantees in excess of ten percent of the institution's legal lending limit; j) the (parent company) identity of financial institutions from which the NC institution has purchased and to which the institution has sold loans totaling in excess of ten percent of its legal lending limit and the SIC of the borrowers. 3) Amend the North Carolina Uniform Commercial Code (UCC) to require debtors and secured parties to record the dollar amount of indebtedness involved in their transaction and the value of collateralized assets when filing financing statements. A) Encourage the U.S. Commerce Department to update its C404 forms to require detailed disclosure of financing sources for construction projects valued over $500,000. 5) Request the Federal Reserve System to tighten up its Regulation 0 in order to require detailed information about the parties and terms involved in insider lending by commercial banks. -\U2- 6) Make public the sources and terms of financing for proposed buyouts, buybacks and restructurings of both publicly- and privately- held firms with a significant level of employment and annual revenues. 7) Make public standardized, transact ion-by- transact i on reports on institutions' trade finance activities. It seems to us that there are at least five outstanding reasons why these kinds of information initiatives would be broadly beneficial to the pub lie. First, they would contribute to a stronger economy. Marketplaces with good information work better for all concerned than marketplaces with poor or restricted information. Second, they would contribute to better government. As you know, decision-making at the state and local 1 eve 1 --whether it's creating laws and ordinances or investing public funds--is only enhanced by access to more and better information. Third, they're fair. Banks and other regulated financial intermediaries are uniquely protected institutions in this country. Banks, for example, receive the benefits of deposit insurance, access to the Federal Reserve's discount window and limits to competition (like regional forms of interstate banking and anti-trust exemptions). In return, banks and other regulated financial intermediaries are publicly chartered to uphold unique responsibilities. Providing access to good information should be one of those responsibilities. The banking industry is right when it contends that it shouldn't have to bear informational or regulatory burdens that disadvantage it in relation to other financial service competitors. We would like to see all segments of the financial services industry make public as much information about their operations as possible. We also think that the widely varying ways in which banks and other intermediaries disclose operating information proves the point that much less data ought to be considered "proprietary" than is currently the practice. Examples of this abound. A good one is NCNB's laudable habit of reporting its commercial loans by industry segement. NCNB is the only major bank in the southeast that provides this useful information to the public and it obviously hasn't hurt the company's bottom line to do so. Fourth, solid information requirements are in place in other Jurisdictions. And they work. Maine, Massachusetts, Maryland, Michigan, Minnesota, Missouri, Nevada, New York, Ohio, Vermont, West Virginia, W i scons i n, the District of Columbia and several cities all have laws on their books that require financial institutions to provide extensive information on their activities to state or local agencies. Even Tennessee, a neighboring state with fewer governmental resources and a less illustrious history of public service provision 144 than North Carolina, requires the kind of UCC reporting I mentioned ear 1 ier . Fifth, getting better information doesn't have to be expensive or administratively burdensome. For example, altering the C404 and UCC process in the way I've suggested is only a matter of adding a sentence or a few words to the existing printed forms and would not involve additional exoense for the reporting parties or filing agencies. Some of the other measures I have mentioned would involve startup costs to geocode and categorize transactions. These costs, we think, would not be insurmountable and could, if necessary, be fairly shared by public agencies supervising financial activities. After all, any effort to instill more discipline in financial markets ultimately depends on more and more citizens effectively acting as an expanded corps of examiners. Mr. Chairman and members of the Committee, financial enterprise has grown by leaps and bounds in North Carolina in recent years but none of these issues is really new. I.n 1810, the North Carolina House was discussing the establishment of the first state bank. During that debate, Representative William Drew of Halifax Borough told his colleagues, "The banks have secrets and mysteries which are not to be told. My God, Sir! Are the people of North Carolina not to know the secrets and mysteries of an institution within its bosom, which preys upon its vitals?" ■145- We respectfully suggest that 178 years later, it is within your power to help North Carolina's citizens better understand the "secrets and mysteries" of our leading financial institutions. I hope that you will decide to do so by recommending that the Interstate Banking Act be amended to provide needed information to the people. Thank you again for the opportunity to express our views. -146- BANK HOLDING COMPANIES LENDING DATA [Ranked by Assets at 12/31/871 AS I OF ftSSETS AT L£AD BANK(S) 5E Holding Coapany Location Loans Loan/ Loan/Dep. Sub-qual. All Com./ Resid. Indiv. Insn Rank [lead banklsl-assets] [SOOO] Asset Growth Loan Loans Indus. R/E Loans Loar Ratio Rates Ratio Loans Loans [SCO) 1 NCNB [kirporation (Jiarlotte 17,087,000 58.4 + 8/+ 6 1.99 [a] 57.7 21.9 7.6 6.6 535.: [a:NOffi 0^ NC-16,069,411; b:NCNB o^ FL-9.814,551] [b] 55.4 15.7 6.4 15.8 2 First Union Corp. Charlotte 15,388,000 55.7 +10/+ 2 1.19 [c] 53.9 12.8 17.1 7.1 48. [c:FUNB 0^ NC-16,165,193; d:FUNB oi FL-7,251,408] [dl 44.8 10.8 7.9 9.0 3 SunTrust Banks Inc. Atlanta 18,410,000 67.7 + 9/+ 6 1.10 [e] 59.4 26.0 3.2 10.5 85,j [e:Trust Co. Atlanta-5,648,703; ^:Sun Bank Orlando-3,648,014] [f] 68.7 18.6 9.4 18.7 4 Bamett Banks Inc. Jacksonville 17,023,000 72.3 +14/+ 6 1.07 [g] 69.1 11.5 12.9 17.5 145,,: [g:Bamett Bank riia«i-5,339,032! h:Bamett Bank Orlando-2.025,299] [h] 79.4 7.9 12.9 38.0 1 5 Sovran Financial Corp. Norfolk 13,745,000 64.7 +12/+11 0.81 [i] 66.3 20.6 6.9 20.1 243,' [i:Sovran Bank >W-11,888,101; j:Sovran Naryland-3,580,607] [j] 64.2 19.1 10.3 9.3 6 Citizens & Southern Atlanta 12,996,000 63.4 +12/+ 7 1.12 [k] 64.2 22.2 6.7 13.9 n.a [k:CiS 6A-1 1.672, 964; 1:0.5 FL-4.913,4513 [1] 64.8 8.8 15.6 15.6 7 First » 197.9 > 1078.9 2.91 4598.4 9.2«/i AiSouth Bancorporation 5,731.3 5093.5 18.^»/ll 638.7 1 [Other Statesl^additional states where BHC has full-service operation x^less than one percent of total bank deposits in state t:l-5 deposit rank aiong BHCs in state (if aiong top 5) Sui of state deposits lay not equal BHC totals due to rounding or source discrepancies SOURCES: Depository Institutions Perforiance Directory: Bank Holding Cpipanies. 1987; Rand-HcNally Bankers Directory: First 1988 Edition; 1987 annual reports ■14Q- BANK HOLDING COMPANIES SUBSIDIARY BANKS BY STATE NCNB Corporation-Charlotte NCNB National Bank of NC-Charlotte NCNB National Bank of SC-Colubiia NCNB National Bank of Florida-Taipa NCNB National Bank-Atlanta NCNB Virginia-Duifries CentraBank-Baltiiore First Union Corporation-Charlotte First Union Ntl. Bank of NC-Charlotte First Union Ntl. Bank of SC-Greenville First Union Ntl. Bank of FL-Jacksonville First Union Ntl. Bank of GA-Atlanta First Union Ntl. Bank of TN-Nashville SunTrust Banks Inc. -Atlanta Trust Coipany Bank-17 separate banks in GA Sun Bank-20 separate banks in FL Third Ntl. Bank in Nashville-Nashville Third Ntl. Bank in Knonvil ie-Knoivil le Third Ntl. Bank in Anderson Cty-Lake City Third Ntl. Bank in Sevier Cty.-Sevierville Aierican Ntl. Bank & Trust Co. -Chattanooga Haiilton Bank of Upper East TN-Johnson City Haiilton Bank of Horristown-Horristown Mid-South Bank I Trust Co.-Hurfreesboro Merchants Bank-Cleveland First Ntl. Bank of Laxrenceburg-Lawrenceburg Union Bank-Pulaski Peoples Bank-Lebanon Citizens Bank-Savannah Citizens I Southern Corporation-Atlanta Citizens li Southern Ntl. Bank-Atlanta Cit. (. So. Ntl. Bank of FL-Ft. Lauderdale Citizens k Southern Bank-Tallahassee Cit. & So. Ntl. Bank of SC-Charieston First Wachovia Corporation-Minston-Salei Wachovia Bank h Trust Co.-Uinston-Salei First Ntl. Bank of Atlanta-Atlanta First Atlanta Bank N.A.-New Castle, DE HNC Financial Corporation-Baltiiore Maryland National Bank-Baltiiore Aierican Security Bank N. A. -Washington Maryland Bank N. A. -Newark, DE Barnett Banks Ine.-Jacksonvil le Barnett Bank-32 separate banks in Florida Barnett Bank N. A. -Marietta, GA Sovran Financial Corporaton-Norfolk Sovran Bank N.A.-Richiond Sovran Bank/Maryland-Bethesda Sovran Bank/DC National-Washington Sovran Bank/Central South-Nashville Sovran Bank-S separate banks in Tennessee Sovran Bank/Delaware-Dover Sovran Bank/Kentucky-Hopkinsvi 1 le Southeast Bankin; Corporation-Hiaii Southeast Bank-6 separate banks in Florida Signet Banking Corporation-Richiond Signet Bank Virginia-Richiond Signet Bank Haryland-Baltiiore Signet Bank N. A. -Washington Crestar Financial Corporation-Richiond Crestar Bank Virginia-Richiond Crestar Bank Maryland-Bethesda Crestar Bank N. A. -Washington First Aierican Corporation-Washington First Aierican Bank N. A. -Washington First Aierican Bank of GA-Atlanta First Aierican Bank of HD-Silver Spring Eastern Shore Ntl. Bank-Pocoioke City, NO First Aierican Bank of VA-McLean Valley Fidelity Bank k Trust-Knoxville First Aierican Bank of NY-New York City Doiinion Bankshares-Roanoke. VA Doiinion Bank N. A. -Roanoke Doiinion Bank-4 separate banks in VA Doiinion Bank of Naryland-Rockvi 1 le Doiinion Bank of Washington-Washington Doiinion Bank of Middle TN-Nashville First Ntl. Bank of Clarksville (TN) First Ntl. Bank of Dickson-Dickson, TN First Ntl. Bank of Sparta-Sparta. TN First Ntl. Bank of Springfield (TN) Union National Bank-Fayettevil le, TN Florida National Banks-Jacksonville Florida National Bank-Jacksonville Kingsley Bank-Orange Park, FL AiSouth Bancorporation-Biriinghai AiSouth Bank N.A.-Biriinghai AiSouth Bank of Walker County- Jasper First Ntl. Bank of Biriinghai (ALj First Ntl. Bank of Tuskaloosa (AD AiSouth Bank of Florida-Pensaccla •150- Mr. Schlesinaer ' s written statement also contained a copvriehted portion on Preliminary Charlotte Lending Data, SOUTHERN FINANCF. PROJECT. ■151- '^'^ COMMITTEE O^^^ INTERSTATE BANKING - November 16. 1988 Senator Guy. Representative Diamont. Members of the Committee. Thank you for your invitation to address the Committee concerning the interests and concerns of the North Carolina Press Association with respect to the impact of regional interstate banking on North Carolina's communities, firms and people. I regret that a scheduling conflict prevents my appearing in person this morning. I will appreciate your including the following brief remarks in the record of your proceedings and considering them in your deliberations as you prepare your report and recommendations. The North Carolina Press Association. Inc. (the "NCPA") is a voluntary membership association chartered as a non-profit corporation under the laws of North Carolina. Its membership includes approximately 55 daily newspapers and 120 non-daily newspapers published throughout North Carolina. The NCPA, like most state newspaper and broadcast associations, has been a strong advocate of public records laws, open meetings laws, and other legislation designed to maximize the ability of the people of North Carolina to obtain the information necessary to make informed decisions about matters of public interest and concern. It is in that vein that these brief remarks are tendered for your consideration. Just as our democracy depends upon an informed electorate, our capitalistic economy depends upon informed consumers and investors. When it comes to choosing between candidates for public office, our system is predicated on the belief that our citizens can-and will-sift through a welter of campaign ads. position papers, political speeches, pamphlets and posturings in order to ferret out the facts they need to decide which candidates most closely reflect their own philosophies, attitudes, beliefs and -152' goals. As the recent campaign season dramatically demonstrated, the process often is a bit daunting; separating the wheat from the chaff becomes especially difficult when the quantity of chaff is disproportionately great. Nevertheless, our political system relies heavily on the presumption that the greater the quantum of information available to the voters, the better. The NCPA believes that this same philosophy should apply in the making of economic and business decisions. As more and better information is made available to consumers, the likelihood increases that they will choose products and services that are appropriate to their needs. That it why we urge you, in formulating your report and recommendations to the General Assembly, to include meaningful reporting and disclosure requirements so that the customers of North Carolina's banks can make informed judgments as to which banks deserve their patronage, and which will best meet their banking needs. The legislation establishing this committee specifically charges you to study, among other things, "the statewide distribution of credit and its impacts on traditional industries, small businesses, depressed counties, agriculture, internationally traded sectors of the economy, minority and women-owned businesses, and housing markets." Requiring banks to disclose where and to whom their loans are made will help the General Assembly and the general public evaluate the impacts of credit practices and policies. Let me illustrate. One of the most direct "impacts" of credit distribution occurs when credit simply is not available to particular sectors of the economy, in particular geographic areas, or to particular categories of people. For example, using one of the classifications that you are specifically directed to study, imagine that you are a woman who owns her own business: a dress •153- shop, perhaps, or a beauty salon--or, as is the case with many NCPA members, a newspaper. You decide that you need a business loan or a line of credit in order to expand your business. How do you make a meaningful choice about which banks to approach? Must you rely solely on advertisements, or word of mouth? Neither of these sources is a reliable guide to which banks willingly make loans to businesses owned by women, and which do not. One way you might decide would be to obtain copies of public reports in which each bank disclosed information reflective of its credit practices, such as the aggregate amounts of its loans to women-owned businesses. If banks were required to file such reports, and to disclose therein meaningful information about their lending policies, consumers would be more likely to make informed choices. To use another example from your legislative charge, a farmer who consulted a public report and found that a large interstate bank had made no loans in his county during the past three years might be spared a great deal of wasted time and personal embarrassment by taking his business elsewhere. Or, if he chose to apply to the bank in question, he would at least be armed with knowledge that would be helpful in formulating his negotiating strategy. With respect to the issue of interstate banking itself, it is only appropriate that banks who have enlisted the General Assembly's assistance in extending their business beyond North Carolina's borders should be required to disclose whether as a result they are making more or less credit available to the citizens and businesses of their home state. In the course of enlisting legislative support for interstate banking, the industry said that entrv into these new markets would make North Carolina's banks stronger, -15^ and thus better able to meet the credit demands of North Carolina's individual and corporate citizens. Surely they should be required to disclose information sufficient to permit our citizens to judge whether the supply of bank credit has grown or shrunk, and how it is being distributed. It is not my purpose today to propose specific reporting or disclosure requirements to this committee. You and the committee staff possess all of the expertise necessary to formulate such details as when and where such reports should be filed and what their formats should be. Obviously, the privacy of individual borrowers and depositors can and should be maintained while requiring the disclosure of the aggregate information required to reflect each bank's lending proclivities. My purpose is to encourage you to recommend reporting and disclosure requirements that will serve the people of North Carolina. As a practical matter, the vast majority of our citizens must do business with one or more of the banks incorporated in this state. The General Assembly has the power to provide the people with information that will assist them selecting banks whose lending policies, services and business philosophies are most compatible with their personal and business needs. On behalf of the North Carolina Press Association, I urge you to recommend that the General Assembly exercise that power. HHS27:blh -155- APPENDIX S STATEMENT OF THE NORTH CARDLINA BANKERS ASSOCIATION TO THE STUDY CCWMITTEE ON INTERSTATE BANKING 16 N0VE:^ER 1988 PREPARED BY JOHN R. JORDAN, JR. LEGISLATIVE COUNSEL TO THE ASSOCIATIOSI -13^-.- This stateanent is offered by the North Carolina Bankers Association on behalf of the 65 catmercial banks in North Carolina. The Association appre- ciates the opportunity to respond to various statements made at the November 16, 1988, meeting of the Study Camdttee on Interstate Banking. II At the meeting of the Interstate Banking Study Coirtnittee held on Wednesday, Noven±)er 16, 1988, in the State Legislative Building, several speakers asserted their feeling that interstate banking had adversely affected the distribution of canmercial credit in North Carolina. While not inpuning the motives of any of these persons, the North Carolina Bankers Association respectfully submits that such assertions and conclusions are erroneous. Actually, as will be shewn below, the evidence before the Study Ccmnittee is to the contrary. Indeed, some of the evidence offered by these speakers at the November 16th meeting supports a contrary conclusion as does the information offered by the Comnissioner of Banks as well as that of other witnesses who have testified earlier before the Study Comnittee. All will agree with the proposed conclusion that "major changes have been occurring in the financial services sector, and will continue to occur". These changes include the deregulation of deposit rate ceilings, the authorization of various new deposit accounts, the broadening of thrift institution powers, the globalization of financial markets, and the expan- sion of non-bank ccnpetition including insurance corpanies and securities firms into markets traditionally sensed by ccmmercial banks. The resulting ■157. market changes and the many technological changes being experienced by ccnnercial banking has narrowed bank margins, reduced bank profits, and has forced changes in pricing and marketing practices. There has been a narrow- ing of spreads and a general increase in risks in banking. Federal Reserve data for the Fifth District for 1987 shows that bank returns declined vAiile write-offs increased. This was true for North Carolina as it was for the nation as a whole. Indeed, the data sipplied to the Study Camittee by the Carmissioner of Banks suggests that North Carolina's largest banks did ver^' well in controlling credit quality even in the face of the national trend. However, as bank risk increases it is to be expected that banks will respond by attempting to increase equity and by cutting back on marginal loan opportunities. In nearly all of the instances described by the witnes- ses at the November 16th meeting, the loans requested appear to be marginal and with insufficient returns to justify the added risk. While in earlier times more banks might have been willing to have made such loans, it becones less likely ncv.' with increasing concerns about loan losses and generally less favorable credit conditions and narrower spreads. It should also be noted that nearly all of the instances cited by the witnesses involved applications for venture capital: new, sinall, start-up firms which were high risk and do not represent the kind of business tradi- tionally served by cornvsrcial banks. For such loans it is not unusual for venture capitalists to require returns of up to 30% to 35%. It is interest- ing to note that, notwithstanding the risky venture capital character of the loan applications described by one witness, a total of more loan dollars were granted than were denied by North Carolina banks. There can be no stronger evidence of the active efforts of North Carolina banks to meet all of the credit needs of this state. -158- This Study Conmittee does not have to be reminded that corrmercial banks are the most strenuously regulated and restricted of all financial and lending institutions. Conmercial banks must ccmpete in the market place with savings and loan associations, credit unions, mortgage bankers, savings banks, life insurance corpany lenders, securities dealers, non-bank institu- tions and others, none of v^iich operate under restrictions anyv^ere near so severe as those imposed on commercial banks. As a consequence, ccrmercial banks are not growing as fast as the economy as a vdiole and continue to lose market share to other financial services companies. The Federal Deposit Insurance Corporation Quarterly recently released the information that comiercial banks' share of the ccrmercial and industrial loan market shrank in the second quarter of 1988 to 32%. Such loans made up 40% of banks' loan pjortfolios at year end 1982 and was in excess of 50% not too many years earlier. No evidence has been presented to indicate that interstate banking has caused a movement of money out of North Carolina. To the contrary, inter- state banking has brought money into North Carolina to the benefit of its citizens. When one looks at the proportion of loans funded with deposits raised locally, comnunity banks are seen to raise about 95% of their funds in local markets while deploying only about 57% of their assets in local markets. On the other hand, regional banks raise only about 61% of their funds locally while cornnitting 54% of their assets to local markets. Money center institutions such as NCNB, First Union and Wachovia raise about 26% of their funds in local markets and deploy in excess of 28% of their assets in local markets. Put another way, the ratio of local-uses to local-sources of funds is 60% for camunity banks, 90% for regional banks and 110% for money center banks. -Tsq- A point was raised as to the time factor in loan processing. This is a traditional problem which the banks themselves constantly address. It has nothing to do with interstate banking. Hopefully, the advent of the ccmpu- ter era will bring a workable solution. North Carolina banks have been addressing the situation on their own for sane tirtvs new. Wachovia, for exanple, has recently instituted a new time saving technique for processing loan applications. Other North Carolina Banks imdoubtedly will do the same. With respect to office closings, the Comnittee ' s attention was directed to a news story under date of 15 November 1988 as to plans by certain of the major North C£u:olina banks to close sore unprofitable branches. First, it should be noted that there has been a constant increase in the total number of main offices and branches in North Carolina from 1979 to date. In fact, according to figures supplied by the Conmissioner of Banks there was a 10% increase in the number of bank locations between 1983 and 1988. According to the Coinnissioner, the number of banking offices increased fron 1,865 in 1982 to 1,966 in 1986, an increase of 101 offices. In total, the number of offices of banks and thrifts increased from 2,867 in 1982 to 3,030 in 1986. Thus, it does not appear that interstate banking has in any way impacted on the availability^' of access to banking services in North Carolina. However, with the acceptance of autonated tellers by the public, seme branch offices are not now needed. Actually, some North Carolina banks have deployed ATMs more widely than brick and mortar branches thus increasing custemer convenience. NCNB quite recently has begun an experiment with supermarket branches as a way to provide customer convenience. The highly ccmpetitive climate in which conmercial banks now find themselves dictates a sustained effort for market share but at the same time the rising cost of doing business and the burden of restrictions not borne by their conpetition -160- will not perndt the operation of unprofitable branches. In fact, the bank regulatory authorities would not long permit the operation of an unprofit- able branch. The history' of ccsnmercial banking in North Carolina shows that the citizens of this state need never fear that they will be denied safe and convenient banking services. Finally, the Study Ccmnittee's attention is directed to the efforts instituted by the banking industry itself to provide lew cost banking for lower- income customers. North Carolina's largest banks already offer lew- cost checking accounts. Banks that do not have them are studying the matter. The banking industry/ does not wish to see any citizen of this state going to a check cashing service in the belief that such is more econcmical than the use of a ccinmercial bank. Fran an overall perspective such is not true. Low cost accounts do not of themselves generate profits for banks. They lose money because the cost of handling the paper work exceeds the amount the bank can earn on the small amount a lew- income custcmer maintains in his balance. However, the bank hopes to develop a long-term relationship v^ich will be beneficial for both the custcmer and the bank. In any event, this is another example of the conmercial banks of North Carolina moving on their own to meet a need notwithstanding its questionable irrpact on profit. Ill In conclusion, the North Carolina Banking Association comiends the Interstate Banking Study Ccmnittee for its diligence in examining the ques- tions vdiich have been raised in connection with the impact of interstate banking. Having done so, you will find no evidence that it has adversely affected credit in North Carolina or that it has adverselv affected the -161- banking public in any way. On the other hand, you will find that it has enhanced the availability of credit in North Carolina and that it prordses to do even more so in the future. Certainly such a salutary result lives up to the expectations expressed to the General Assembly at the time it made interstate banking available to North Carolina. The North Carolina Bankers Association agrees that no additional bar- riers should be irrposed on ccmmercial banking unless careful and detailed study reveals a ccrpelling need for such. Should the General Asseinbly elect to study this matter further, the North Carolina Bankers Association and its full membership pledge full cooperation. -162' APPENDIX T NCNB CORPORATION'S ACQUISITION OF NCNB TEXAS NATIONAL BANK On July 29, 1988, the Federal Deposit Insurance Corporation (FDIC) approved NCNB Corporation's proposal to acquire control of NCNB Texas National Bank, a newly established "bridge bank" created by the FDIC to acquire certain assets and assume the deposit and certain other general liabilities of the Texas bank subsidiaries of First RepublicBank Corporation, Dallas, Texas. NCNB Corporation entered into an interim management agreement with the FDIC and NCNB Texas. Under this agreement NCNB Corporation is managing NCNB Texas until a definitive Assistance Agreement is entered into and an initial investment in the capital of the bank is made. Under the interim agreement with the FDIC, NCNB Corporation will acquire 100% of the voting shares of NCNB Texas, representing 20% of the Texas bank's total equity on the date of the execution of a definitive Assistance Agreement between NCNB Corporation and the FDIC. It is contemplated that this agreement will be executed shortly. At that time, the FDIC will acquire nonvoting stock of NCNB Texas, representing 80% of the bank's total equity and NCNB will receive an exclusive, nontransferable option, exercisable at any time during the next five years, to purchase the FDIC's 80% interest. Simply stated, with the definitive agreement 1 ''V NCNB Corporation acquires 20% of the equity with an option to purchase the remaining 80% over five years. On September 29, 1988 NCNB Corporation raised S250HM in new capital with the sale of convertible preferred stock. Of this amount $210MM will be used to purchase the initial 20% equity in NCNB Texas National Bank. Additional purchases of stock in NCNB Texas National Bank will be made in conjunction with the raising of new capital. The sale of NCNB Texas to NCNB Corporation was conducted by the FDIC pursuant to the emergency interstate acquisition powers of Section 116 of the Garn-St Germain Depository Institution Act of 1982, as amended (12 U.S.C. 1823(f)]. As a result, the provisions of the Douglas Amendment [Section 3(d) of the Bank Holding Company Act] and any relevant state law (including the 80%-20% deposit requirements of the North Carolina and other southeastern states' Regional Reciprocal Banking Acts), were preempted. Therefore, these laws do not inhibit NCNB Corporation's acquisition of NCNB Texas. Further, NCNB Corporation is not required, by reason of the acquisition of NCNB Texas, to divest any of its subsidiary banks and is not prevented from acquiring any other bank or bank holding company in North Carolina or any other state which otherwise authorizes such acquisitions. !(S4- The recent action of the North Carolina General Assembly of admitting Texas to the North Carolina Interstate Banking Region was not necessary for NCNB Corporation to acquire control of NCNB Texas. Rather, as previously indicated, the provisions of Section 116 of the Garn-St Germain Depository Institution Act of 1982, as amended, preempt all otherwise relevant state laws and provided NCNB Corporation the necessary authority. •1G5- North Carolina Department of Commerce James G. Marnn. (iovcrnor Claude E. Pope, Secrctarx MEMORANDUM TO: Terry Sullivan Director of the Research Division Legislative Services JDffi ce FROM: L. McNeil Chestnut \,y// General Counsel ^C^' W DATE: November 30, 1988 RE: Interstate Banking Study Committee Following our conversation ihis moi-ning plf^TSP let mo ad\'is'> yon of the following: 1. We concur in the revised draft of the proposed clr nges wn submitted to the Intprstato Ranking. Study Committee regariing: a. Confidentiality of Pocord' at r; . S "^.'i-gOfb )(, 1) ' 4') n,d !.:.t>. h. Publication of an Interstate' Apj)lication at C.S S'^-zllKd) within 30 days nf r^-cpiving a complete appl i ca t ioti . c. Registration of a Datik Holding Company at C.S. '^■'■-227 (en which there wevr no changes tfi our draft). 2. You and Commissioner Graham have discussed repeal of the anti-commission Rule at G.S. S3-6. With regard to this -opeal , ve enclose a proposed revision. On the following r>age I liave provided yon with a basis for this repeal with citation to other states for your information. We anticipat'- defining thr> terms and conditions under which commissions may be paid by either a policy position or appropriate regulation. Lastly, we want the Interstate Banking Study Committee to at least be aware that we will propose full interstate banking in North Carolina. We aro. continuing to research this issu° but will give yon a proposed draft as soon as the same is available Attachment Otticc ot ( iomniissioner of Banks • \\ ilium 1 . ( iraham. (Commissioner 4.>0 North Salisburx Street • F O Box 2951: • Raleigh, .\orth Ciarolina :'6:6-0.^' 1 2 • 1 elephone 9] 9--.v^- >()lf, \n \ qujl ( )[)p(irtiiTiit\ Ainrnijtivc Anion Kniploxir -1.6,0- FINDINGS TO SUPPORT REPEAL OF THE ANTI -COMMISSION RULE IN NORTH CAROLINA BANKING LAWS AT G.S. 53-6 Currently, North Carolina G.S. 53-6 prohibits a bank from paying commissions on the sale of its organizational stock. This prohibition is seen as an impediment to the formation of community banks. As community banks concentrate the delivery of their banking services and products in the communities where they are organized, every reasonable step should be taken to foster their growth and development. One such step would be to repeal the current statutory prohibition on the payment of commissions to sell the organizational stock of a bank. In a survey by the North Carolina Commissioner of Banks on the authority for payment of commission on organizational stock 43 states responded. Of those responding 22 states expressly allowed for commissions and another six (for a total of 28) took the position that since their statutes were silent on the subject, commissions on the sale of organizational stock are permissible. Fourteen states specifically prohibited these commissions and one, which had a silent statute, did not take a position and advised that they had had no experience on the matter. The proposed revision of G.S. 53-6, repealing the anti -commission provision, submitted by the Commissioner of Banks would therefore be consistent with a majority of the states. 167. I PROPOSED DRAFT TO THE NORTH CAROLINA BANKING LAWS ELIMINATING THE ANTl -COMMISSION' S RULE AT G.S. 53-6 G.S. 53-6 is hereby amended to read as follows: The capital stock of every bank shall be fully paid in, in cash, before it shall be authorized by the Commissioner of Banks to commence business and the full payment in cash of the capital stock shall be certified to the Commissioner of Banks under oath by the president, cashier, or secretary of the said bank. •1.6«- APPENDIX V GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 1989 S/H interhanklra2 THIS IS A DRAFT 2-DEC-88 15:36:30 Short Tille: Interstate Banking Conficlentialit\ and Publication (Piihlic) Sponsors: Referred to: 1 A BILL TO BE ENTITLED 2 AN ACT TO REQUIRE CONFIDENTIALITY FOR INTERSTATE BANK 3 ACQUISITION RECORDS AND PUBLICATION OF NOTICE OF APPLICATION 4 OF INTERSTATE BANKING ACQUISITION. 5 The General Assembly of North Carolina enacts: 6 Section I. G.S. 5.V99 reads as rewritten: 7 "§53-99. Official records, (a) The Commissioner of Banks shall keep a 8 record in his office of his official acts, rulings, and transactions which, except as 9 hereinafter provided, shall he open to inspection, examination and copying b\ an\ 10 person. 11 (b) Notwithstanding any laws to the contrary, the following records of the 12 Commissioner of Banks shall be confidential and shall not be disclosed or be SLlbjecl to 13 public inspection: 14 (I) Records compiled during or in connection with an examination, audit or 15 investigation of any hank, banking office . bank holding company or its nonbank 172- GENERAL ASSEMBLY OP^ NORTH CAROLINA SESSION 1989 1 subsidian. . or trust department operating which operates or has applied to operate 2 under the provisions of this Chapter: 3 (2) Records containing information compiled in preparation or anticipation 4 of litigation, examination, audit or investigation; 5 (3) Records containing the names of any borrowers from a bank or 6 revealing the collateral given by any such borrower: Provided, however, that every 7 report of insider transactions made by a bank which report is required to be filed with 8 the appropriate State or federal regulatory agency by either State or federal statute or 9 regulation shall be filed with the Commissioner of Banks in a form prescribed b\ him 10 and shall be open to inspection, examination and copying by any person: 11 (4) Records prepared during or as a result of an examination, audit or 12 investigation of any bank, bank affiliate, bank holding company or its nonbank 13 subsidiary, data service center or banking practice by an agency of the United States, or 14 jointly by such agency and the Commissioner of Banks, if such records uoulJ he 15 confidential under federal law or regulation: 16 (4a) Records prepared during or as a result of an examination, audit or 17 investigation of any bank, bank affiliate, bank holding company or its nonbank 18 subsidiary. data ser\'ice center or banking practice by a regulatory agency of jurisdiclion 19 of the region defined in G.S.53-2I0( I I ) if these records would be confidential under 2 0 that jurisdiction "s law or regulation: 21 (5) Records of information and reports submitted by banks to federal 2 2 regulatory agencies, if such records would be confidential under federal law or 2 3 regulation: 2 4 (6) Records of complaints from the public received by the banking 2 5 department and concerning banks under its super\'ision if such complaints would or 26 could result in an investigation: 2 7 (7) Records of examinations and investigations of consumer finance 28 licensees: 29 (8) Records of pre-need burial contracts maintained pursuant to Article 7 A 30 of Chapter 65 of the General Statutes including investigations of such contracts and 31 related credit inquiries: Page 2 interbank I ra2 -173- GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 1989 1 (9) Any letters, reports, memoranda, recordings, charts, or other documents 2 which would disclose any information set forth in any of the confidential records 3 referred to in subdivisions (I) through (8)." 4 Sec. 2. G.S. 53-21 1 reads as rewritten: 5 "§ 53-211. Acquisitions by regional bank holding companies, (a) A regional hank 6 holding company that does not have a North Carolina bank subsidiary (other than a 7 North Carolina bank subsidiary that was acquired either pursuant to Section 116 or 8 Section 123 of the Gam-St Germain Depository Institutions Act of 1982 (12 U.S.C. 9 1730a(m). 1823(f)) or in the regular course of securing or collecting a debt previously 10 contracted in good faith, as pro\ided in Section 3(a) of the Bank Holding Compan> Act 11 of 1956 as amended (12 U.S.C. 1842(a)) may acquire a North Carolina bank holding 12 company or a North Carolina bank with the approval of the Commissioner. The 13 regional bank holding company shall submit to the Commissioner an application for 14 approval of such acquisition, which application shall be approved only if: 15 (1) The Commissioner determines that the laws of the state in which the regional 16 bank holding company making the acquisition has its principal place of business permit 17 North Carolina bank holding companies to acquire banks and bank holding companies 18 in that state: 19 (2) The Commissioner deteiTnines that the laws of the state in which the regional 2 0 bank holding company making the acquisition has its principal place of business permit 21 such regional bank holding company to be acquired by the North Carolina bank holding 2 2 company or North Carolina bank sought to be acquired. For the purposes of this 2 3 subsection, a North Carolina bank shall be treated as if it were a North Carolina hank 2 4 holding companx: 2 5 (3) The Commissioner determines either that the North Carolina bank sought to be 26 acquired has been in existence and continuously operating for more than five years oi 2 7 that all of the bank subsidiaries of the North Carolina bank holding company sought to 2 8 be acquired have been in existence and continuously operating for more than five years: 29 Provided, that the Commissioner may approve the acquisition by a regional bank 30 holding company of all or substantially all of the shares of a bank organized solely for 31 the purpose of facilitating the acquisition of a bank that has been in existence and 3 2 continuously operating as a bank for more than five years; and interbank lra2 Page 3 -174- GENERAL ASSEMBLY OF NORIH CAROLINA SESSION 1989 1 (4) The Commissioner makes the acquisition subject to any conditions, restrictions. 2 requirements or other limitations thai would apply to the acquisition by a Nonh 3 Carolina bank holding company of a bank or bank holding company in the stale where 4 the regional bank holding company making the acquisition has its principal place of 5 business but that would not apply to the acquisition of a bank or bank holding 6 company in such state by a bank holding company all the bank subsidiaries of which 7 are located in that state. 8 (b) A regional bank holding company that has a North Carolina bank subsidiary 9 (other than a North Carolina bank subsidiary that was acquired either pursuant to 10 Section 116 or Section 123 of the Gam-St. Germain Depository Institutions Aci of 11 1982 (12 U.S.C. 1730a(m). 1823 (f) or in the regular course of securing or colleciing a 12 debt previously contracted in good faith, as provided in Section 3(a) of the Bank 13 Holding Company Act of 1956 as amended (12 U.S.C. 1842(a)) may acquire any Nonh 14 Carolina bank or Nonh Carolina bank holding company with the appro\al of the 15 Commissioner. The regional bank holding company shall submit to the Commissioner 16 an application for approval of such acquisition, which application shall be approwJ 17 only if the Commissioner makes the acquisition subject to any conditions, restrictions. 18 requirements or other limitations that would apply to the acquisition by a Nonh 19 Carolina bank holding company of a bank or bank holding company in the Stale where 20 the regional bank holding compan\ making the acquisition has its principal place of 21 business but that would not apply to the acquisition of a bank or bank holding company 22 in such state by a bank holding company all the bank subsidiaries of which are located 2 3 in that state. 2 4 (c) The Commissioner shall rule on any application submitted under this section not 2 5 later than 90 days following the date of submission of a complete application. If the 26 Commissioner fails to rule on the application within the requisite 90-day period, the 2 7 failure to rule shall be deemed a final decision of the Commissioner approving the 2 8 application. 29 (d) The Commissioner, within 30 days of receiving the complete application for 30 acquisition, shall publish notice of the intent of a regional bank holding company to 31 acquire a North Carolina bank or Noilh Carolina bank holding company under 3 2 subsection (a) or (b) of this section. The notice shall be published in newspapers Page 4 ^^ interbank I ra2 -175- GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 19«9 1 setA'ing the communities in which the principal offices of the North Carolina hank or 2 North Carolina bank holding company and of the regional bank holding company arc 3 located. Notwithstanding any other provision of this section, the application lor 4 acquisition shall not be approved until the requirement for publication has been met." 5 Sec 3. This act is effective upon ratification. interbank I ia2 Page 5 -176- ^ APPENDIX W GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 1989 S\H D S\H interbank2ra THIS IS A DRAFT 2-DEC-88 15:37:15 Short Title: Registration of subsidiaries of BHC's (Public) Sponsors: Referred to: 1 A BILL TO BE ENTITLED 2 AN ACT TO REQUIRE THE REGISTRATION UNDER THE NORTH 3 CAROLINA BANK HOLDING COMPANY ACT OF BANK HOLDING 4 COMPANIES CONTROLLING DIRECTLY OR INDIRECTLY NONBANK 5 SUBSIDIARIES OPERATING IN NORTH CAROLINA. 6 The General Assembly of North Carolina enacts: 7 Section 1. G.S. 53-227 reads as rewritten: 8 "§ 53-227. Registration of bank holding companies. Every bank holding 9 company, not later than July I. 1985. or within 180 days after becoming a 10 bank holding company controlling a North Carolina federally or 11 Slate-chartered bank or banks, or within 180 days after acquiring contniL 12 directly or indirectly, over a nonbank subsidiarj' or subsidiaries having offices 13 located in this State shall register with the Commissioner on forms approved 14 by the Commissioner." 15 Sec. 2. This act is effective upon ratification. -177- APPENDIX X GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 1989 SorH S or H interhank3ra THIS IS A DRAFT 2-DEC-88 14:16:17 Short Title: Allow commissions on initial bank stock (Public) Sponsors: Referred to: 1 A BILL TO BE ENTITLED 2 AN ; T TO ALLOW SALES COMMISSIONS ON INITIAL BANK STOCK 3 OFFERINGS 4 The General Assembly of North Carolina enacts: 5 Section 1 . 6 "§ 53-6. Payment of capital stock. The capital stock of every bank shall be full) 7 paid in. in cash, before it shall be authorized by the Commissioner of Banks to 8 commence business and the full payment in cash of the capital stock shall be certified 9 to the Commissioner of Banks under oath by the president and_. cashier, or secretary of 10 the said bank. Provided, that the stock sold by any bank in process of organization, or 11 for an increase of the capital stock, shall be accounted for to the hank in the full 12 amount paid for the same. — No commission or fee shall be paid to any person. 13 association, or corporation for selling such stock. The Commissioner of Banks shall 14 refuse authority to commence business to anv bank if commissions or fees have been 15 paid, or have been contracted to be paid by it. or by anyone in its behalf, to any -178- GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 1989 ^ Person, a-rsociation, or corpormion for senirinp nihrnriptinnr fnr ^r ^^ning .,^,^1. in 2 such bank." 3 Sec. 2. This act is effective upon ratification. 4 5 Page 2 -179. interbank.lra I